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VOO vs. SPY: Which S&P 500 ETF Is Better?


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The S&P 500 is one of the primary U.S. stock market indexes and is a favored investment by both retail investors and financial advisors alike. In fact, no less than Warren Buffett, the oft-quoted billionaire CEO of Berkshire Hathaway, has repeatedly suggested that the best investment for most individuals is simply a low-cost index fund. But investors are spoiled for choice when it comes to S&P 500 index funds, so it can take some work to figure out which one is the best one for you. Two of the most popular low-cost options are the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust, symbols VOO and SPY, respectively. Here are the primary differences between the two.

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Type of Security

Both VOO and SPY are exchange-traded funds, meaning they can be bought and sold on the open market anytime the exchanges are open. This gives both of these securities more flexibility than S&P 500 funds that are traditional open-end mutual funds, which can only be bought or sold once per day, after the market is closed.

Issuer

As the name might suggest, the Vanguard S&P 500 ETF was created by the Vanguard Group of mutual funds. It is currently managed by the Vanguard Equity Index Group. The SPDR S&P 500 ETF is managed by State Street Global Advisors.

Origination

The Vanguard S&P 500 ETF was created on Sept. 7, 2010. The SPDR S&P 500 ETF has a significant edge in seniority over VOO, with an inception date of Jan. 22, 1993. In fact, the SPY was the very first exchange-traded fund to ever come into existence.

Composition

The objectives of both of these funds are to mirror the performance of the S&P 500 index. As such, both ETFs typically hold the identical securities that comprise the S&P 500. However, there are usually very slight discrepancies in the actual securities held in each fund. For example, as of Sept. 30, 2022, State Street Global Advisors reported that the SPY held 505 securities, the same as the S&P 500 index. But according to Vanguard, as of the same date, VOO held just 503 securities.

Compositionally, the two funds are almost identical, but there are very small variances in their top 10 holdings as well. For example, here are the reported top 10 holdings of VOO:

  1. Apple, 6.9%
  2. Microsoft, 5.7%
  3. Alphabet, 3.6%
  4. Amazon, 3.3%
  5. Tesla, 2.3%
  6. Berkshire Hathaway, 1.6%
  7. UnitedHealth Group, 1.6%
  8. Johnson & Johnson, 1.4%
  9. Exxon Mobil, 1.2%
  10. Meta Platforms, 1.0%

For SPY, here is how State Street Global Advisors reports its top 10 holdings:

  1. Apple, 6.93%
  2. Microsoft, 6.77%
  3. Amazon, 3.32%
  4. Tesla, 2.35%
  5. Alphabet Class A, 1.90%
  6. Alphabet Class C, 1.71%
  7. Berkshire Hathaway Class B, 1.60%
  8. UnitedHealth Group, 1.57%
  9. Johnson & Johnson, 1.43%
  10. Exxon Mobil, 1.21%

Although these top 10 holding lists are almost identical — especially when accounting for SPY’s dividing its Alphabet holdings into Class A and Class C — there are minor differences. The top 10 holdings comprise 28.6% of VOO’s portfolio, while SPY’s top 10 are a slightly higher 28.79%.

Fees

Fees are one of the main differentiating features between VOO and SPY, as they have identical investment objectives and nearly identical portfolios. While SPY has an annual expense ratio of 0.0945%, VOO’s is just 0.03%. Although both are relatively small expense ratios in the world of ETFs, SPY’s is more than three times the amount of VOO’s. 

Performance

When it comes right down to it, probably the most important single factor when it comes to choosing the right S&P 500 fund is performance. The short- and long-term performance records of VOO and SPY are similar. However, as might be expected, the higher fees charged by SPY act as a small drag on that ETF’s relative performance, as highlighted by the following results:

  • 2023 YTD performance (as of Jan. 12): SPY, +3.79%; VOO, +3.82%
  • 1-year average annual return (market price, as of Sept. 30, 2022): SPY, -15.54%; VOO, -15.39%
  • 3-year average annual return (market price, as of Sept. 30, 2022): SPY, +8.02%; VOO, +8.16% 
  • 5-year average annual return (market price, as of Sept. 30, 2022): SPY, +9.09%; VOO, +9.23% 

Overall, although the differences are small, VOO has historically outperformed SPY over a variety of measurement periods.

Yield

The VOO fund has a yield of 1.69%, vs. the 1.65% of the SPY. This compares with the current yield of the S&P 500 index itself of 1.65%.

Net Assets

Although the SPY has been in existence for 17 more years than VOO, the latter fund has far more investor assets. As of Jan. 12, 2023, the SPY had assets of $356.68 billion, vs. the $744.77 billion of the VOO. The combination of outperformance and a lower expense ratio has no doubt influenced investor choice between the two.

VOO vs. SPY: Which Is Better?

S&P 500 index funds are generally considered to be good long-term investments for those that seek growth and can handle some day-to-day and year-to-year volatility. Unfortunately, investors can’t directly buy the S&P 500 index, so they’ll have to choose some type of proxy investment. 

There are plenty of traditional open-end and more modern exchange-traded funds that track the performance of the S&P 500, and VOO and SPY are two of the most popular. But seeing as both can typically be bought and sold for zero commission on a public exchange, the main distinction between the two comes down to SPY’s higher expense ratio and VOO’s slightly superior long-term performance. 

For most investors, the scales tilt towards VOO in the heads-up battle with SPY, even though the latter is the grandparent of the entire ETF industry. 

Data was compiled on Jan. 15, 2023, and is subject to change.



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