XLK vs QQQ: Side-by-Side ETF Comparison

Which one is better? XLK vs QQQ comes down to pure tech exposure versus diversification - XLK's 98.8% technology allocation delivered a stronger 20.74% one-year return with a lower 0.09% expense ratio, while QQQ spreads across communications and consumer cyclicals for broader NASDAQ-100 coverage. Choose XLK for concentrated tech sector bets, pick QQQ when you want tech-heavy growth with some cushion from other industries.

Table of Content

• Annual & Cumulative Returns
• Risk Metrics
• Dividend Yield & Growth
• Fees & Liquidity
• ETF Composition: Asset Classes
• Regional Allocation
• Sector Weights
• Top 10 Holdings
• Valuation & Growth Metrics
• Which ETF Fits Your Portfolio?

ETF Issuers & Investment Objective

XLK comes from State Street's SPDR family and sticks to a simple mission: own the technology sector, nothing else. The fund tracks the Technology Select Sector Index with almost surgical precision, holding 98.8% in pure tech names and a sliver of communication services. This laser focus means you're getting exactly what it says on the tin - no surprises, no drift into other sectors.

QQQ plays a different game entirely. Invesco's trust tracks the NASDAQ-100, which naturally skews tech-heavy but isn't married to the sector. The result is a 51% technology weighting paired with significant positions in communication services (16%) and consumer cyclicals (13%). You're still getting plenty of Apple and Microsoft, but also Amazon, Tesla, and a roster of non-tech growth names that happen to list on Nasdaq.

The issuer distinction matters less than the philosophy difference. State Street built XLK for investors who want pure technology exposure with minimal fuss. Invesco created QQQ for those seeking growth wherever it lives, which historically has clustered in Nasdaq-listed companies. One gives you a scalpel, the other gives you a broader net - both approaches have merit, but they solve different problems.

Annual & Cumulative Returns

XLK's technology focus delivered stronger long-term returns, beating QQQ by roughly 2.7 percentage points annually over the past decade. That edge compounds meaningfully - a $10,000 investment in XLK ten years ago would be worth about $8,000 more than the same amount in QQQ. The pure-play approach worked particularly well during the 2015-2020 tech boom, though it's worth remembering that concentration cuts both ways.

The shorter-term picture tells a different story. QQQ actually pulled ahead this year with a 1.37% return versus XLK's 0.78%, and the gap narrows considerably over three-year periods where both funds essentially matched each other. QQQ's broader diversification - only half its assets in tech compared to XLK's 98.8% - provided some cushion when growth stocks stumbled in 2022.

Both funds show the classic growth fund pattern of strong bull market performance with higher volatility than the overall market. XLK's sector concentration amplifies this effect, which explains both its superior long-term numbers and its deeper drawdowns during tech selloffs. Investors comfortable riding out those swings get rewarded for their patience, while those seeking slightly smoother returns might prefer QQQ's more balanced approach despite the modest performance trade-off.

Risk Metrics

The volatility numbers tell a clear story here. XLK's 19.88% one-year volatility sits noticeably higher than QQQ's 15.64%, and this gap holds steady across the three-year window too. That's what you'd expect from a pure-play tech fund versus a broader basket - XLK's 98.8% technology concentration leaves no cushion when the sector stumbles, while QQQ's 51% tech weighting plus sizable communication services and consumer positions smooths the ride.

What's interesting is how this risk translates to risk-adjusted returns. Despite XLK's bumpier path, its Sharpe ratio of 1.42 still signals solid performance per unit of risk taken. QQQ's 1.61 ratio edges it out though, suggesting investors got slightly better compensation for the volatility they endured. The gap isn't dramatic - both funds delivered strong risk-adjusted gains - but it shows QQQ's diversification helped during this period.

For investors choosing between them, the question boils down to conviction versus comfort. XLK gives you technology exposure in its purest form, which worked well recently with that 20.74% one-year return. But you'll need to stomach the extra volatility that comes with betting on a single sector. QQQ offers a gentler experience while still capturing most of tech's upside, plus you get some diversification baked in. Neither approach is inherently better - it depends whether you want targeted exposure or a smoother journey.

Dividend Yield & Growth

Neither XLK nor QQQ will excite income investors. XLK’s 0.54% yield barely edges out QQQ’s 0.46%, and both sit well below the 1.3% you’d get from a plain-vanilla S&P 500 fund. The eight-basis-point gap sounds trivial, yet it’s still a 17% higher cash payout on every dollar invested, and XLK has delivered it while beating QQQ by 3.2 percentage points over the past year. In other words, you’re picking up a sliver of extra income without giving back total return, a rare combination in large-cap tech.

Payment rhythm is the quieter difference. QQQ sends checks every March, June, September and December, a schedule retirees often like for budgeting. XLK’s distribution calendar is less predictable; the fund usually pays once per year, typically in December, and the amount can swing with the sector’s profit cycle. If steady quarterly cash matters, QQQ has the edge. If you’re simply reinvesting, the timing difference is noise.

Bottom line: treat both yields as rounding errors on what is still a growth story. Choose XLK for the slightly higher payout and purer tech exposure; choose QQQ for broader diversification and a more regular income schedule. Just don’t expect either fund to replace a dividend-focused strategy anytime soon.

Fees & Liquidity

XLK charges 0.09% a year, less than half of QQQ’s 0.20%. On a $10,000 holding that’s $9 versus $20 small in dollar terms, yet the gap compounds quietly over time. If you run a tight ship on costs, XLK’s fee edge is hard to ignore.

Both funds trade millions of shares daily, so bid-ask spreads are razor-thin and you can move size without moving the market. The real liquidity story is what you’re buying: XLK owns only tech names, while QQQ’s basket mixes tech with large-caps from other sectors. That sector purity keeps XLK’s internal turnover low, which helps the fund stay cheap and tax-efficient.

Bottom line: cost-sensitive, tech-only investors will find XLK the leaner choice. QQQ costs more, but you’re paying for broader sector reach and the same tight spreads worth it if you want growth exposure beyond pure tech.

ETF Composition: Asset Classes

Both XLK and QQQ are essentially all-equity funds, with each keeping less than 0.1% of assets in cash and the rest in stocks. The split tilts even further toward domestic names: XLK parks 98.8% in U.S. shares while QQQ holds 96.3%. What that means in practice is that currency swings will barely move the needle for either fund, and any non-U.S. exposure you get is incidental rather than strategic.

The small 2.5-percentage-point gap in foreign stock weighting mostly reflects how the two indexes treat multinational giants. QQQ’s Nasdaq-100 parent includes a handful of overseas listings and some U.S. companies with foreign incorporation, nudging its international slice up to 3.6%. XLK’s S&P Technology sector benchmark is stricter, so its 1.1% non-U.S. stake is largely leftover rounding from American depositary receipts. Bottom line: if you already own a broad international fund, either ETF fits neatly without creating overlap.

Cash drag is a non-issue here. Both portfolios keep about seven hundredths of a percent in money-market instruments, just enough to handle daily subscriptions and redemptions. For investors, the takeaway is simple. You’re getting pure-play equity exposure with either ticker; the real decision comes down to sector concentration (XLK’s near-total tech bet versus QQQ’s barbell of tech, communications and consumer names) rather than geographic or cash allocation differences.

Regional Allocation

Both XLK and QQQ are almost pure plays on U.S. companies, but they reach that result in slightly different ways. XLK keeps 98.9% of its assets in North America, leaving only a rounding-error 1.1% spread across Europe and emerging Asia. QQQ is only marginally less domestic at 97.6% North America, yet the remaining 2.4% is scattered more widely: a combined 1.4% in developed Europe (including a sliver in the U.K.), plus small weights to Latin America and emerging Asia.

For most investors the gap is immaterial either fund gives you a dollar-denominated, U.S.-centric tech basket. What matters is how that tiny foreign slice interacts with the sector mix. XLK’s 1.1% overseas exposure sits inside the same technology sector that dominates the fund, so any currency swing or regional tech slowdown is amplified by the single-sector lens. QQQ’s 2.4% abroad is diluted across communication services and consumer cyclicals as well, so country-specific shocks are cushioned by a broader revenue base.

Bottom line: if you’re looking for a hedge against a weak dollar or direct emerging-market lift, neither ETF delivers. Choose between them on cost, sector breadth, or index methodology; geography won’t move the needle.

Sector Weights

XLK puts almost everything on tech - 98.8% of the portfolio sits in the sector, with the remaining 1.2% parked in communication services. That single-minded bet explains why the fund’s returns move in near-lockstep with the large-cap tech trade. QQQ, by contrast, keeps just over half its assets in technology. The rest spreads across consumer cyclicals (13%), communication services (16%), plus smaller slices of healthcare, industrials, and even a sliver of utilities and real estate.

The Nasdaq-100’s broader mix means QQQ won’t capture every tick of a pure tech rally, but it also won’t crater quite as hard if software or semiconductors hit a rough patch. During the past year that trade-off showed: XLK out-gained QQQ by about three percentage points, yet anyone who held XLK through 2022’s drawdown felt the pain more acutely because there was literally nowhere else for the fund to hide.

Neither approach is inherently better; it comes down to how much concentration risk you can stomach. If you already own plenty of healthcare or consumer names elsewhere, XLK gives you a clean tech overlay. If you’d rather let the index do the rebalancing across sectors, QQQ’s 51% tech weight still leans heavily toward growth while leaving a bit of cushion when the market rotates.

Top 10 Holdings

XLK's portfolio reads like a who's who of enterprise tech, with NVIDIA commanding nearly 15% of the fund's assets. The top three holdings alone make up almost 40% of the ETF - that's some serious concentration. Palantir's appearance in the fifth spot might catch some investors off guard, as the data analytics firm isn't typically grouped with the other semiconductor and software giants that dominate the fund.

QQQ spreads its bets more evenly across the tech landscape. While NVIDIA still leads, it represents just 8.6% of assets - a far cry from XLK's 15% allocation. The inclusion of Amazon and Tesla shows QQQ's broader mandate beyond pure-play tech companies. These consumer-facing giants simply wouldn't qualify for XLK's sector-specific approach, but they make up meaningful positions in QQQ at 4.8% and 3.8% respectively.

The concentration difference becomes stark when you look at the top five holdings. XLK's five largest positions account for roughly 38% of the fund, while QQQ's top five represent about 31%. This isn't just a numbers game - it means XLK investors face more single-stock risk if one of those mega-cap tech names stumbles. QQQ's approach offers a bit more cushion, though you'll pay slightly more for that diversification with its 0.20% expense ratio versus XLK's bargain-basement 0.09% fee.

Valuation & Growth Metrics

XLK trades at a modest premium: 25.7 times forward earnings versus QQQ’s 25.1, and the gap widens once you move down the income statement. The tech-only fund’s price-to-book sits at 8.3, a full 30 % above QQQ’s 6.4, while price-to-sales reaches 7.1, again about 40 % richer than QQQ’s 5.0. In plain terms, investors pay more for every dollar of XLK’s assets and revenue, a reflection of its concentrated exposure to high-margins software and semiconductor names.

Growth expectations partly justify that premium. Analysts see XLK’s long-term earnings compounding at 14.7 % a year, comfortably ahead of QQQ’s 10.8 %. The catch is that history tells a different story: over the past five years QQQ’s earnings have actually grown 15.8 % annually, outpacing XLK’s 14.2 %, and QQQ has also delivered faster top-line expansion (8.3 % sales growth versus 6.2 %). The market, then, is betting that XLK’s mature mega-caps can re-accelerate, while QQQ’s broader mix heavy in consumer cyclicals and communications gets tagged with a slower forward outlook.

What it means for your spreadsheet: XLK gives you a higher-octane earnings story at a higher entry price; QQQ offers a slightly cheaper ticket with more diversified growth that has already materialized. If you think Big Tech’s next spending cycle on AI and cloud delivers, XLK’s premium could pay off. If you’d rather not pay up for projected growth that hasn’t shown up yet, QQQ’s blend provides similar valuation with a longer, more balanced track record.

Which ETF Fits Your Portfolio?

If you want pure tech exposure, XLK delivers it at a bargain. The 0.09% expense ratio keeps more of the 20.74% one-year gain in your pocket, and the portfolio is almost entirely technology names. That concentration can cut both ways: when the sector rallies, XLK usually leads, but any tech-specific sell-off hits just as hard.

QQQ spreads the risk across the Nasdaq-100, so technology still dominates at 51%, yet you also get large consumer and communication stakes. The extra diversification trimmed this year’s return to 17.5%, and the 0.20% fee is higher, yet the fund has historically weathered single-sector storms better.

Choose XLK when you already own broad-market funds and simply want to overweight tech. Pick QQQ if you’d like growth-oriented leadership without betting everything on one sector. Either way, size the position so a tech pullback won’t sink the whole portfolio.

If you want to have look at other ETF comparisons, check out this: ETF Overlap Tool

Data sources: The data has been obtained from the ETF provider's website and ETF fact sheet.