Comparing Technology Juggernaut ETFs: QQQ Vs XLK

ETFS

The Invesco QQQ Trust (QQQ) is an ETF that tracks a market cap weighted index of Nasdaq 100 stocks, while the Technology Select Sector SPDR Fund (XLK) tracks an index of S&P500 technology stocks. Both ETFs are extremely popular and highly liquid technology ETFs. The ETFs do have considerable overlap in their holdings, but there are some differences that investors should take note of.

Source: ETF.com QQQ vs XLK Comparison

For starters, XLK charges a lower fee at just 0.13% compared to QQQ’s 0.20% fee. QQQ is larger with $128 billion in assets under management, while XLK holds a respectable $34 billion in assets under management. XLK is a bit more concentrated with 72 holdings compared to 104 for QQQ. Both ETFs meet similar objectives for investors.

Comparing Holdings

Both ETFs invest exclusively in technology companies, but some of the sectors may be surprising. Consumer cyclicals and healthcare sectors make up decent portions of QQQ, while XLK holds companies from more niche sectors like software & IT services, various types of hardware sectors, and communications.

Source: ETF.com QQQ vs XLK Comparison

Breaking down these sectors into individual holdings shows some interesting similarities, as well as differences. XLK holds about 45% of the entire fund in just the top two stocks, Apple (AAPL) and Microsoft (MSFT). And while I’m a fan of these two companies, being that concentrated leads me to think that one should consider just buying those two companies directly, rather than pay fees for an ETF to do it with half your money anyway.

QQQ on the other hand, only holds about 24% of the fund in Apple and Microsoft, the latter of which isn’t even in the top 2 holdings. Amazon (AMZN), which is not held by XLK, is the second largest holding in QQQ at around 11%. Together the top three companies in QQQ make up around one-third of the fund’s holdings. The top 7 QQQ holdings are an approximately equivalent concentration to the top 2 in XLK.

Source: ETF.com QQQ vs XLK Comparison

The top 10 QQQ holdings make up 57% of the total fund, while the top 10 holdings in XLK make up over 70% of the fund. XLK does have fewer holdings, so it makes sense that it’s more concentrated, but 70% of the fund in the top 10 really could undermine the potential performance of some of the smaller companies held by the fund with tiny overall weightings.

Some notable stocks held by QQQ that are not held by XLK include Amazon (AMZN), Tesla (TSLA), Alphabet (GOOG), and Facebook (FB). XLK tends to hold more stable companies that QQQ does not like Visa (V), Mastercard (MA), and Salesforce (CRM). Judging by these holdings, QQQ appears to be the more aggressive fund.

Comparing Performance

As many of the holdings overlap, it’s no surprise that the performance between these two ETFs has been similar over time. Year-to-date QQQ has outperformed XLK slightly, as it has on a longer time frame of 10 years. XLK though has had periods of outperformance as well, putting up better 5-year and 3-year returns.

Source: ETF.com QQQ vs XLK Comparison

Winner: Invesco QQQ Trust

Picking a winner between these two ETFs is no easy task. XLK charges a slightly lower fee, but QQQ has slightly superior long term performance and more liquidity. On top of that, QQQ has what I think is a more reasonable concentration mix. Thus, for me, if I had to choose one, it would probably be QQQ. If I wanted more exposure to Apple and Microsoft I would just buy those companies individually, rather than pay a management fee to have nearly half my money in two highly liquid stocks I could easily buy myself. Therefore, QQQ would earn my money over XLK.

I’ll be writing more articles on great (or sometimes not so great) stocks and ETFs. If you enjoyed this article and wish to receive updates on my latest research, click “Follow” next to my name at the top of this article. Also, consider checking out the links to my social media pages on my Seeking Alpha profile.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in any stock mentioned over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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