VGT vs FTEC: Risk-Adjusted Tech Exposure Analysis

Building on recent momentum in technology stocks, two dominant exchange-traded funds offer investors exposure to this sector. Vanguard's Information Technology ETF (VGT) leads the space with $117.2 billion in assets under management according to ETFRC data, significantly outpacing its main competitor. It trades with high liquidity, averaging $452 million daily, and carries a 0.09% expense ratio. Top holdings include NVIDIA (16.8%) and Apple (15.6%), tracking the MSCI US Tech Index with a beta of 1.36 relative to the broader market.

Fidelity's MSCI Information Technology Index ETF (FTEC) presents a lower-cost alternative with a 0.08% expense ratio, just one basis point cheaper than VGT according to ETFRC data. However, FTEC's scale is much smaller, with only $17.4 billion in assets, translating to notably lower liquidity at $62 million average daily volume. While both funds boast 95.1% holdings overlap, meaning they track nearly the same stocks, FTEC's concentration risk appears slightly higher based on its top holdings percentages for NVIDIA (21%), Apple (18.7%), and Microsoft (17.3%). Both funds exhibit near-identical risk profiles, with annualized volatility of 29.1% for VGT and 29.4% for FTEC, and betas of 1.36 and 1.38 respectively, while FTEC offers cost savings, its significantly lower AUM and trading volume raise concerns about execution efficiency and potential price slippage for large orders.

Concentration Risk Assessment

FTEC's holdings are notably tighter than its rival VGT's, with NVIDIA representing 21% of the portfolio versus 16.8% in VGT according to ETFRC data. Microsoft follows as the second-largest holding at 17.3%, while VGT's Apple stake accounts for 15.6% according to ETFRC data.

This concentration amplifies exposure to single-stock volatility, particularly in the tech sector. The Herfindahl index of 752 for VGT signals moderate concentration risk, but FTEC's top-heavy structure likely elevates this vulnerability further.

Both ETFs maintain tight bid-ask spreads (0.03%), reflecting liquidity. However, FTEC's $17.4B AUM is substantially smaller than VGT's $117.2B, making it more susceptible to pricing dislocations during market stress. If sector-specific shocks emerge-such as regulatory crackdowns or demand shifts-FTEC's narrower diversification could magnify losses. Investors should monitor whether spread widening occurs, as this would compound liquidity risks for the lower-volume ETF.

Concentration & Liquidity Vulnerabilities

VGT's massive $117.2 billion AUM makes it a market heavyweight, yet its 752 Herfindahl index reveals meaningful concentration risk in just a handful of large caps. Should regulatory shifts targeting tech mergers or AI/cloud demand soften as noted according to ETFRC data, selling pressure in these dominant holdings could trigger disproportionate fund outflows. Its high liquidity metrics – $452 million average daily volume and a tight 0.03% bid-ask spread – would likely erode under such stress, widening spreads and amplifying losses during rapid redemptions.

FTEC, while offering a slightly lower 0.08% expense ratio, faces heightened concentration risk with NVIDIA (21%), Apple (18.7%) and Microsoft (17.3%) comprising nearly half its holdings. This makes it exceptionally sensitive to sector-specific shocks. Its smaller $17.4 billion AUM and lower liquidity – $62 million average daily volume versus VGT's – could lead to sharper price dislocations during market turmoil. Even with a comparable 0.03% bid-ask spread, FTEC's reduced trading depth makes it far more vulnerable to large sell orders, potentially magnifying drawdowns faster than VGT during liquidity crunches.

Both funds exhibit high volatility (VGT: 29.1%, FTEC: 29.4%) and beta exposure to the S&P 500 (1.36 and 1.38 respectively), meaning broader market moves would significantly amplify tech sector weakness. Investors should note that FTEC's lower assets and extreme top-heavy concentration could transform sector corrections into outsized personal portfolio impacts, especially if liquidity dries up simultaneously across these correlated funds.

Risk-Adjusted Allocation Guidance

Concentration risk remains a critical constraint for FTEC exposure. The Fidelity Information Technology ETF's top three holdings-NVIDIA (21%), Apple (18.7%), and Microsoft (17.3%)-create significant single-sector vulnerability according to ETFRC data. This concentration elevates downside risk during sector-specific shocks, warranting an institutional allocation cap below 30% of tech exposure. Even its 1 basis point fee advantage over VGT cannot fully offset this structural risk.

Liquidity metrics further differentiate these ETFs. While FTEC maintains solid daily trading volume at $62M with tight 0.03% bid-ask spreads, its $17.4B asset base offers far less buffer against mass redemption pressures compared to VGT's $117.2B AUM according to ETFRC data. For large institutions, this 6.7:1 AUM disparity becomes decisive during market stress when redemption flows accelerate.

Two material catalysts could reweight this allocation framework. First, Fed rate cuts historically boost leveraged tech stocks like those in FTEC, potentially justifying temporary allocation increases. Conversely, accelerated antitrust enforcement targeting mega-caps could trigger abrupt repricing, demanding defensive positioning. Both scenarios require reevaluation of the 30% concentration threshold, though VGT's liquidity cushion provides more flexibility to navigate such volatility.