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.
VOO vs. SPY: What’s the Difference?
SPY and VOO are both S&P 500 index ETFs, so they actually have more similarities than differences. They’re both large-cap funds that track the performance of the S&P 500 index, so the ETFs’ goals are the same, and so are the types of securities they invest in and the passive management styles of the fund managers.
The funds’ holdings are also quite similar in terms of the specific stocks they invest in and the industries those stocks represent.
That said, the funds do differ in some respects. Slight variations in holdings and weightings, for example, result in small variations in performance. Here’s a look at the primary differences between VOO and SPY.
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 mutual funds, which can only be bought or sold once per day, after the market is closed.
ETFs also let you invest with less money compared to mutual funds. With an ETF, you can buy a single share at whatever the market price is at the time you make the trade, whether it’s $50 or $500. Mutual funds, on the other hand, often have a minimum investment consisting of a specific dollar amount, such as $1,000 or $3,000.
That said, VOO is also available as an Admiral Shares mutual fund.
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.
Among U.S. ETF providers, Vanguard and State Street are the second and third largest, respectively, behind BlackRock, according to Statista. However, Vanguard is twice as large, with $1.16 trillion in total assets under management compared to State Street’s $1.02 trillion.
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, SPY was the very first exchange-traded fund to ever come into existence.
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 Nov. 3, 2023, State Street Global Advisors reported that SPY held 503 securities, the same as the S&P 500 index. According to Vanguard’s most recent figure, for Sept. 30, 2023, VOO held 505 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 as of Sept. 30:
- Apple, 6.96%
- Microsoft, 6.49%
- Amazon, 3.19%
- Nvidia, 2.97%
- Alphabet Class A, 2.15%
- Tesla, 1.91%
- Meta Platforms, 1.85%
- Alphabet Class C, 1.84%
- Berkshire Hathaway Class B, 1.77%
- Exxon Mobil, 1.3%
For SPY, here is how State Street Global Advisors reports its top 10 holdings as of Nov. 3:
- Microsoft, 7.17%
- Apple, 7.10%
- Amazon, 3.44%
- Nvidia, 3.04%
- Alphabet Class A, 2.09%
- Meta Platforms, 1.91%
- Alphabet Class C, 1.80%
- Berkshire Hathaway Class B, 1.75%
- Tesla, 1.66%
- UnitedHealth Group, 1.35%
Although these top 10 holding lists are almost identical — even down to the funds investing in both Class A (GOOGL) and Class C (GOOG) shares of Alphabet stock — there are minor differences. The top 10 holdings comprise 30.43% of VOO’s portfolio, while SPY’s top 10 are a slightly higher 31.31%.
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.
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 performance records of VOO and SPY are remarkably similar in terms of recent performance and three-, five- and 10-year returns.
|Quarter to date (market price)||-3.29%||-3.31%|
|2023 YTD performance||+12.99%||+13.00%|
|1-year average annual return (market price)||+21.50%||+21.37%|
|3-year average annual return (market price)||+10.06%||+10.10%|
|5-year average annual return (market price)||+9.77%||+9.87%|
|10-year average annual return (market price)||+11.26||+11.91|
The 30-day SEC yield is a metric developed by the Securities and Exchange Commission to provide an apples-to-apples comparison of bond funds. The calculation is based on the 30-day period ending on the last day of the previous month, according to Morningstar, and is calculated by dividing the net investment income per share earned during that period by the highest offering price per share on the last day of the period. The resulting yield represents investors’ dividend and interest earnings after expenses.
VOO has a 30-day SEC yield of 1.60% as of Oct. 31, vs. SPY’s yield of 1.47% as of Nov. 3. This compares with the current yield of the S&P 500 index itself of 1.62%.
Although SPY has been in existence for 17 more years than VOO, the latter fund has far more investor assets. As of Nov. 3, SPY had assets of $403.56 billion, vs. the $866.5 billion VOO had as of Sept. 30. The low expense ratio is one benefit of a large fund like VOO, which can take advantage of economies of scale.
Both ETFs have similar market prices. As of Nov. 3, SPY is trading at $434.69, whereas VOO is $399.44. If you purchase fractional shares, the price difference might not matter. If you prefer whole shares or your trading platform only offers whole shares, VOO has the advantage of being less expensive.
SPY’s net asset value currently is discounted 0.02%. VOO has neither a premium nor a discount as of Nov. 6.
Volume is the number of shares trading. SPY’s volume was 16,651,689 on Nov. 3. VOO’s volume was 1,144,786. While SPY is the smaller fund by far, its high trade volume could indicate higher liquidity — the ease with which you can buy and sell shares. That could make it a better choice for active traders.
VOO vs. SPY: Which Is a Better Investment?
S&P 500 index funds are generally considered to be good long-term investments for those who 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 toward VOO in the heads-up battle with SPY because of the lower expenses, even though the latter is the grandparent of the entire ETF industry.
Should I Invest In Both VOO and SPY?
Probably not, unless each fund satisfies different investment goals. For example, you might buy SPY if you want to trade actively, or even venture into day trading, because of its high volume, and buy VOO to hold over the long term because of its lower expenses.
John Csiszar contributed to the reporting for this article.
Data was compiled on Nov. 6, 2023, and is subject to change.
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