VGT vs. FTEC: Which Tech ETF Offers a Better Balance of Low Cost, Diversification, and Risk Control in 2025?

The U.S. technology sector remains a cornerstone of high-growth investing, yet its volatility demands careful consideration of cost efficiency, diversification, and risk management. Two leading ETFs-VGT (Vanguard Information Technology ETF) and FTEC (Fidelity MSCI Information Technology Index ETF)-offer nearly identical exposure to the sector but differ in subtle ways that could influence investor decisions. This analysis evaluates their expense ratios, diversification metrics, and risk profiles to determine which better balances these critical factors in 2025.

Cost Efficiency: A Near Tie

Both VGT and FTEC are passively managed, low-cost options for accessing the tech sector. As of 2025, VGT charges an expense ratio of 0.09%, while FTEC's is marginally lower at 0.08%. The difference of 0.01% is negligible for most investors, particularly given the sector's historical returns. However, FTEC's slight edge in cost may appeal to those prioritizing fee minimization. That said, VGT's significantly larger assets under management ($128.3 billion vs. FTEC's $17.4 billion) could offset this difference by offering tighter bid-ask spreads and greater liquidity, which are critical in a sector prone to rapid price swings according to market analysis.

Diversification: Slight Variations in Holdings

Both ETFs provide broad exposure to U.S. technology stocks, with nearly identical sector allocations and overlapping top holdings. NVIDIA, Apple, and Microsoft collectively account for nearly 45% of both funds, reflecting their focus on large-cap leaders as reported by market research. However, VGT holds slightly more stocks-316 compared to FTEC's 290-suggesting marginally broader diversification according to ETF comparison data. Sector distribution is also similar, with over 57% allocated to Electronic Technology and nearly 38% to Technology Services in both ETFs as per financial analysis. While the additional holdings in VGT may reduce concentration risk, the practical impact is minimal given the dominance of the top three names in both funds.

Risk Control: A Mixed Picture

Risk metrics for VGT and FTEC are largely comparable, though discrepancies in maximum drawdowns raise questions. Both ETFs exhibit similar betas (1.22–1.33 relative to the S&P 500) and standard deviations, reflecting their shared exposure to a volatile sector according to investment analysis. However, one source reports VGT's maximum drawdown at -54.63% versus FTEC's -34.95% over the past five years, while another cites both at approximately -35% according to different data sources. This inconsistency may stem from differing time frames or data sources, but it underscores the need for caution in interpreting downside risk.

Risk-adjusted performance metrics, such as Sharpe and Sortino ratios, show FTEC edging out VGT slightly (0.81 vs. 0.80 and 1.28 vs. 1.26, respectively) according to financial modeling. These differences, though small, suggest FTEC may offer marginally better returns per unit of risk. Yet, VGT's larger size and liquidity could mitigate some of these risks during market stress, as larger ETFs often trade with tighter spreads and greater price stability according to market observations.

Liquidity and Trading Considerations

VGT's dominance in assets under management ($128.3 billion) positions it as the more liquid option, which is particularly advantageous in the tech sector, where rapid price movements can amplify trading costs according to market analysis. FTEC, while smaller, still offers sufficient liquidity for most investors but may exhibit wider spreads during periods of high volatility. For traders prioritizing execution efficiency, VGT's scale could be a decisive factor.

Conclusion: A Nuanced Decision

VGT and FTEC are remarkably similar in their core attributes, with differences that are often statistical rather than material. FTEC's lower expense ratio and slightly better risk-adjusted returns make it a compelling choice for cost-conscious investors. However, VGT's larger size, broader diversification, and superior liquidity may justify its marginally higher fees for those prioritizing execution efficiency and resilience during market downturns. In a sector as dynamic as technology, the choice ultimately hinges on individual priorities: FTEC for cost and performance, VGT for scale and stability.