Semiconductor ETF vs Broad Tech: Which Delivers Better Risk-Adjusted Returns?

When it comes to gaining exposure to America’s technology sector, two heavyweights stand out—iShares Semiconductor ETF (SOXX) and State Street Technology Select Sector SPDR ETF (XLK). While both track the tech space, their investment philosophies couldn’t be more different, with SOXX zooming in on chip makers while XLK casts a wider net. Understanding these distinctions can help you pick the fund that aligns with your risk appetite and investment timeline.

Performance: The Semiconductor Advantage Comes With a Price Tag

Over the past five years, SOXX has significantly outperformed its broader peer. The semiconductor-focused fund delivered a compound annual growth rate (CAGR) of 21.1%, crushing XLK’s 18.6% CAGR—itself a solid performance that beats the S&P 500’s 14.8%. Yet, this extra gain of roughly 2.5 percentage points annually tells only half the story.

SOXX’s superior returns came with considerable turbulence. The fund’s maximum drawdown over five years hit a brutal 45.76%, meaning investors who bought at the peak in 2021 experienced nearly a 46% loss by the bottom in 2022. In contrast, XLK weathered the same period with a 33.55% maximum drawdown—a substantial 12-point difference that shouldn’t be overlooked.

When you examine the trailing 12-month returns (as of January 2, 2026), the gap widens further. SOXX surged 42.0% while XLK climbed 23.2%, illustrating the outsized volatility that concentrated semiconductor exposure brings during bull markets.

Cost Structure: The Hidden Drag on Returns

One of the most overlooked factors in fund selection is the expense ratio, yet it compounds over time. SOXX charges 0.34% annually, while XLK levies just 0.08%—a fourfold difference that many retail investors dismiss as trivial.

On a $10,000 investment, you’d pay $34 per year with SOXX versus $8 with XLK. Over 20 years, assuming 7% annual growth, that fee differential could cost you thousands in compounded losses. Moreover, XLK’s dividend yield of 0.62% slightly edges SOXX’s 0.55%, offering marginally better income generation for yield-focused investors.

Portfolio Composition: Concentration vs. Diversification

The structural differences between these funds explain their risk profiles. SOXX holds just 30 positions entirely within semiconductors, creating laser-focused exposure to companies like Advanced Micro Devices (AMD), Broadcom, and Nvidia. This concentration means the fund moves in lockstep with chip industry cycles—benefiting enormously during semiconductor booms but suffering steep losses during downturns.

XLK, meanwhile, contains 70 stocks across the entire technology ecosystem. Its top holdings include Nvidia at 13.72%, Apple at 12.82%, and Microsoft at 11.17%, alongside software providers, IT services firms, and hardware manufacturers. This diversification provides a natural shock absorber; when semiconductors struggle, software may hold steady.

Fund Size and Management Philosophy

XLK manages $93.4 billion in assets, dwarfing SOXX’s $17.7 billion, reflecting its 27-year track record as a sector stalwart. This scale translates to tighter spreads and better execution for shareholders. SOXX, though newer to the party, attracts investors specifically seeking chip industry exposure through a more specialized lens.

The Bottom Line: Risk vs. Reward Trade-off

Choosing between SOXX and XLK ultimately hinges on your investment philosophy. Conservative investors and those with shorter time horizons gravitate toward XLK’s lower fees, broader diversification, and gentler drawdowns. The 0.08% expense ratio and 33.55% five-year maximum drawdown offer a smoother ride with predictable outcomes.

Aggressive investors and those bullish on semiconductor cycles may find SOXX’s 21.1% CAGR and concentrated exposure irresistible, despite the higher costs and volatility. If you can stomach a near-50% loss without panic-selling, SOXX’s superior long-term returns may justify the turbulent journey.

Neither fund is objectively superior—they serve different investor archetypes. The key is honest self-assessment about your risk tolerance and investment horizon before committing capital to either vehicle.