How Does Broad Tech Diversification Compare to Semiconductor Exposure for Investors?

• VGT charges a much lower expense ratio and holds over 10 times as many stocks as SOXX.

• SOXX delivered a stronger one-year return but experienced a steeper five-year drawdown than VGT.

• VGT’s portfolio is broader, while SOXX is tightly focused on U.S. semiconductor companies.

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The Vanguard Information Technology ETF (NYSEMKT:VGT) offers broader sector exposure, while the iShares Semiconductor ETF (NASDAQ:SOXX) focuses tightly on U.S. semiconductor stocks.

Both funds provide exposure to U.S. technology. However, VGT casts a much wider net, with over 300 tech-related holdings, while SOXX targets just 30 leading semiconductor stocks. This comparison may appeal to those weighing concentrated industry bets against diversified sector coverage.

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

SOXX’s higher dividend yield could be appealing to income-driven investors, while VGT’s lower expense ratio gives it an edge for those focused on reducing costs.

VGT delivers exposure to the broader technology sector, spanning 322 stocks. Its top holdings — Nvidia, Apple, and Microsoft — account for a substantial portion of assets, and the fund’s nearly 22-year history reflects long-term stability. With no leverage, currency hedge, or ESG overlays, VGT offers standard tech exposure.

By contrast, SOXX is a pure-play semiconductor tracker, currently holding 30 companies and allocating heavily to Broadcom, Advanced Micro Devices, and Nvidia. Investors looking for precise exposure to U.S. chipmakers may favor SOXX’s tight industry tilt.

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VGT and SOXX offer distinct strategies with their varied exposure to the technology sector.

VGT is far more diversified, holding more than 10 times the number of stocks as SOXX. While it’s solely focused on tech stocks, it includes companies from all corners of the technology industry. SOXX is much more niche, targeting only 30 semiconductor stocks.

Greater diversification can be both an asset and a hindrance with ETFs. VGT has experienced less price volatility in recent years, with a milder max drawdown and lower beta. That can give it an edge if the market stumbles, as you’re less likely to see significant ups and downs with this ETF.

At the same time, though, more diversification can sometimes result in lower-performing stocks dragging down the fund’s total returns. SOXX has a much stronger one-year performance, nearly tripling the returns of VGT.

Each ETF has its own unique strengths and weaknesses, so neither is necessarily the better option. Where you choose to buy will depend on whether you’re looking for diversified tech exposure or highly targeted access to semiconductor stocks. Just be sure you understand the risk and reward tradeoff when considering these two particular funds.

Expense ratio: The annual fee, as a percentage of assets, that a fund charges its investors.
ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Semiconductor: A material or company involved in making chips essential for electronic devices and computing.
Portfolio breadth: The range or diversity of different holdings within an investment fund.
Dividend yield: Annual dividends paid by a fund or stock divided by its current price, shown as a percentage.
Beta: A measure of an investment’s volatility compared to the overall market, typically the S&P 500.
AUM (Assets Under Management): The total market value of assets that a fund manages on behalf of investors.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specific period.
Growth of $1,000: The value $1,000 would reach if invested over a specified period, reflecting total returns.
Leverage: The use of borrowed money to increase the potential return (and risk) of an investment.
Currency hedge: A strategy to reduce the impact of currency exchange rate fluctuations on investment returns.

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Katie Brockman has positions in Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, and iShares Trust – iShares Semiconductor ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

VGT vs. SOXX: How Does Broad Tech Diversification Compare to Semiconductor Exposure for Investors? was originally published by The Motley Fool