SOXX vs. IYW: Is the iShares Semiconductor ETF or Tech ETF the Better Buy for Investors? |

The iShares U.S. Technology ETF (IYW 2.12%) and the iShares Semiconductor ETF (SOXX 5.57%) both target the most aggressive growth corners of the market, but with different levels of diversification.

While IYW casts a wider net across the technology sector, SOXX focuses on the 30 largest U.S.-listed semiconductor companies, often leading to more dramatic price swings for investors seeking specialized industry exposure.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12months. Dividend yield is the trailing-12-month distribution yield.

The two funds are comparable in terms of fees and income, though SOXX has a slight advantage on both fronts with a lower expense ratio and a marginally higher dividend yield.

Performance & risk comparison

What’s inside

SOXX focuses exclusively on the semiconductor sector, holding just 30 stocks. Its largest positions include Micron Technology, Advanced Micro Devices, and Nvidia. The fund was launched in 2001, and its 0.23% yield has resulted in dividend payments of $1.47 per share over the trailing 12 months.

IYW tracks the broader tech industry and holds a more diversified basket of 148 securities. Its top holdings include Nvidia, Apple, and Microsoft. This fund was launched in 2000 and has paid $0.26 per share in dividends over the trailing 12 months.

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What this means for investors

IYW and SOXX both track technology stocks, but SOXX is narrower, riskier, and potentially more lucrative.

Because SOXX targets only semiconductor stocks, it has the potential for significantly higher returns when the AI sector is booming. While both funds have thrived in recent years, SOXX has more than tripled IYW’s one-year total returns.

The downside to higher earning potential, however, is greater volatility. SOXX is far less diversified than IYW, with just a fraction of IYW’s holdings and a limited focus on one narrow subsector of the market. If AI and semiconductors falter, it will likely lead to steeper downturns for SOXX.

Over the past five years, SOXX has experienced a more severe max drawdown and higher beta, suggesting more significant price swings than IYW. For some investors, that much volatility can be tough to stomach.

Both ETFs can be smart buys, but the right one for your portfolio depends on your goals and risk tolerance. IYW offers a more diversified approach to the tech sector, which has historically led to milder volatility but lower total returns. SOXX is the higher-risk, higher-reward investment, and its future will depend largely on how AI fares going forward.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Micron Technology, Microsoft, Nvidia, and iShares Trust – iShares Semiconductor ETF. The Motley Fool has a disclosure policy.