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🌟🌟🌟$Invesco QQQ Trust(QQQ)$ 

and $Technology Select Sector SPDR Fund(XLK)$  are 2 of the biggest and most popular Tech ETFs.  With the Tech Sector surging in 2023, both have posted excellent returns on 2023 so far with QQQ up 42.7% and XLK up 44.9% year todate.

So what is the difference between these 2 ETFs and which one is better than the other?

QQQ covers the largest 100 non financial stocks within the Nasdaq100 Index.  XLK covers the Technology Sector of the S&P500 Index.

While QQQ gives investors exposure to the market's top mega cap Tech stocks, it also has many non Tech stocks.  In fact QQQ has 57% Tech stocks while XLK is Tech-centric.

Total number of holdings in QQQ is 102 while  XLK is 67.

QQQ's Top 10 holdings make up 48% of the ETF while XLK's Top 10 holdings make up 69% of the ETF.

The Top 2 Holdings Apple and Microsoft make up 21% of the holdings in QQQ while in XLK, it is 47% weightage.

Expense ratio is 0.20% for QQQ versus 0.10% for XLK.

The Magnificent 7 is present in QQQ while Amazon, Tesla, $Alphabet(GOOGL)$ and $Meta Platforms, Inc.(META)$ are missing in XLK.  That is because the S&P500 Index categorises these stocks different.  Amazon and Tesla are classified under Consumer Discretionary.  Meta Platforms and Alphabet are considered communications services.

While these Big Tech Stocks not included in XLK, the ETF has included  Broadcom, Adobe, Cisco, Salesforce, Accenture, Oracle and AMD in its Top 10.

QQQ has the Magnificent 7 plus Broadcom and Costco. 

QQQ gives a broader exposure to what many think of as Tech stocks while XLK has a more narrow definition of Tech stocks.  However QQQ also includes non tech stocks like Pepsi and Costco. 

Performance wise both ETFs have done well over the long term.    However XLK has outperformed QQQ overall.  In the past 1 year, XLK is up 35% vs QQQ 32%.  In the past 3 years XLK is up 13% vs QQQ  9%.  In the past 5 years, XLK is up 19% vs QQQ 16%.  In the past 10 years XLK is up 20% vs QQQ 18%.

Both ETFs have a Buy rating from Wall Street Analysts.  QQQ has a target price of USD 429.52, an upside potential of 13%.  XLK has a target price of USD 197.36, an upside potential of 10%.

In a nutshell, XLK has slightly outperformed QQQ over the past 10 years and also offers investors a lower expense ratio of 0.10%.  XLK has a laser focus on Tech stocks.  

QQQ has a broader group of Tech stocks like Meta Platforms, Amazon and Alphabet which are not found in XLK. 

XLK has a lower entry point of USD 178.47 compared to QQQ, which is USD 377.63.

Ultimately the choice is up to the individual investor.  Both ETFs have done well over the years and will continue to grow exponentially in the long term.  

With the advent of AI, Robotics, digital revolution, cloud computing, quantum, metaverse and other new cutting edge technologies, it makes sense to include technology stocks in our portfolio.  

QQQ or XLK- Which is Better?  The choice is yours.  Personally I prefer XLK as it has a lower expense ratio, better performance and a higher dividend yield of 0.87% versus QQQ 0.63%.

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