XLK’s quiet edge over FTEC comes from a cap limit most investors never notice

By Michael Williams Published May 20, 5:30AM EDT

Quick Read

Fidelity MSCI Information Technology Index ETF (FTEC) and Technology Select Sector SPDR Fund (XLK) track different tech universes: FTEC spans 300+ companies across all market caps with 44.66% in its top three holdings (NVIDIA at 17.51%, Apple, Microsoft), while XLK applies concentration caps to S&P 500 tech giants with 39.18% in its top three and overweights semiconductor equipment names like Applied Materials (2.42%) and Lam Research (2.38%).
XLK outperformed FTEC by 2.48 percentage points year-to-date because its concentration caps freed capital to flow into semiconductor equipment stocks, which became the market leadership trade in 2026.
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XLK’s quiet edge over FTEC comes from a cap limit most investors never notice — © poba / Getty Images

If you are picking a U.S. technology ETF, the choice almost always narrows to Fidelity MSCI Information Technology Index ETF (NYSEARCA:FTEC | FTEC Price Prediction) and The Technology Select Sector SPDR Fund (NYSEARCA:XLK). Both look like the same trade: cheap, passive, mega-cap heavy. But XLK has quietly outrun FTEC 22.06% year to date versus 19.58%, and that gap traces back to a methodology quirk most investors never examine.

What Each Fund Is Actually Betting On

FTEC tracks the MSCI USA IMI Information Technology Index, a pure market-cap-weighted basket spanning 300+ technology companies across large, mid, and small caps. The implicit bet is that broad ownership of the GICS tech sector, weighted strictly by size, captures the category cleanly. XLK tracks the Technology Select Sector Index, a subset of S&P 500 tech names with concentration caps applied by State Street. The bet is narrower: large-cap S&P 500 tech, with rebalancing rules that periodically reshuffle weights among the giants.

Counterintuitively, FTEC ends up more top-heavy. Its top three (NVIDIA, Apple, Microsoft) account for 44.66% of net assets, with NVIDIA alone at 17.51%. XLK’s top three sit at 39.18%, with NVIDIA capped near 15.5%. The concentration caps work against XLK on the way up in the biggest names, but they free weight that gets redistributed into the next tier.

Where the Difference Shows Up

That redistribution is where XLK’s edge in 2026 comes from. XLK’s top 10 includes Applied Materials at 2.42% and Lam Research at 2.38%, while FTEC’s spot in that range goes to Oracle and IBM. Semiconductor equipment has been the leadership trade. The prospectus shows XLK with 42.11% in Semiconductors & Semiconductor Equipment versus 26.69% in Software. FTEC’s broader MSCI IMI net dilutes that semi tilt with mid-cap software and IT services.

Over longer windows the funds run nearly even: FTEC returned 816.18% over 10 years against XLK’s 814.51%. Fees barely separate them either: FTEC at 8.4 basis points, XLK at 8 basis points.

The Verdict

XLK is the better fit for an investor who wants concentrated S&P 500 tech with a structural overweight to semiconductor equipment names that FTEC underweights. FTEC is the cleaner choice for an investor who wants the full GICS tech sector across the cap spectrum and is willing to accept slightly higher mega-cap concentration to get mid-cap exposure. If semis cool and software regains leadership, FTEC’s broader software bench likely closes the gap. Until then, XLK keeps the quiet edge.

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About the Author Michael Williams →

I am a long time investor and student of business, and believe finding good companies that can become great investments is the best game on earth. After 20 years of writing and researching the public markets it is clear that individuals have never had more tools and information to take control of their financial lives. From ETFs and $0 commissions to cryptos and prediction markets there has never been a greater democratization of access to investing.

I write to help people understand the investments available to them so they can make the best choice for their portfolio, whether they're starting out or looking for income in retirement.