One of the most popular index funds to invest in is the S&P 500 as it’s relatively low-risk, with stable returns in the long run. However, investing in the S&P 500 might be slightly confusing at first as there are several different S&P 500 ETFs to choose from. This article focuses on two of the most popular: SPY and IVV. How do they differ, and which is best?
SPY and IVV are very similar overall. The main differences are: (1) SPY’s fees are 0.09%, compared to 0.03% for IVV; (2) SPY has a higher dividend yield at 1.30% compared to 1.28% for IVV; (3) SPY has $374.03B assets under management whereas IVV has $294.95B. Deciding which is best depends on the investment style in question.
In this article, I will go into more detail about the differences between SPY and IVV and their implications for investors.
SPY vs. IVV – Overview
I will commence by comparing metrics highlighting the differences in the make-up of SPY and IVV as well as their fund compositions and industry exposure, before analyzing risk metrics such as volatility and drawdowns. Lastly, I will compare the annual returns and portfolio growth of each ETF.
What’s The Difference?
|Category||Large Blend||Large Blend|
|Issuer||SPDR State Street Global Advisors||iShares|
SPY and IVV are both Large Blend ETFs. This means that most of the stocks held within the ETFs are of large-cap companies. The blends consist of large-cap growth and value stocks.
SPY is issued by SPDR State Street Global Advisors, the world’s fourth-largest asset manager with around $4 trillion in assets under management as of the time of writing.
IVV is issued by iShares; a collection of ETFs under management by BlackRock, the world’s largest asset manager, with over $9 trillion in assets under management.
Assets Under Management
SPY has 374.03B total assets under management, making it the largest ETF in the world by market cap. While SPY may have more total assets than IVV, the latter boasts an impressive second place in the ranking, with 294.95B total assets under management. IVV has also grown its assets base more rapidly than SPY in recent years.
As the two largest ETFs in terms of assets under management, there is no doubt that both SPY and IVV are very trustworthy. Additionally, both funds offer excellent liquidity, although SPY’s liquidity is slightly better.
SPY has a Year-to-date return of 19.94%, which is slightly lower than IVV’s Year-to-date return of 19.99%. The figures are almost identical which is normal considering that both ETFs mirror the S&P 500.
As returns are very similar, informed decisions should take into account dividend yields and expense ratios, among other factors.
SPY has a dividend yield of 1.30%, only slightly higher than IVV’s dividend yield of 1.28%. However, small differences may result in large losses or gains depending on (1) the amount of money invested and (2) the duration of the investment.
IVV reinvests dividends prior to quarterly payouts, meaning that returns may actually be higher than those for SPY.
It is also important to consider an individual’s preferred investing style as well as the fees associated with each ETF. The fees will be covered in the next section.
SPY has an expense ratio of 0.09%, which is significantly higher than the expense ratio of 0.03% that IVV offers. IVV’s expense ratio (in other words, its fees) is among the lowest on the market.
Both expense ratios are almost negligible when dealing with small portfolios. For example, a portfolio worth only $1000 will cost 90 cents or 30 cents for an expense ratio of 0.09% or 0.03%, respectively. However, in the long run, investors may end up saving significant amounts of money as they continuously fund their investments for many years. A small percentage of a huge number is still a huge number!
SPY has a turnover of 2.00%, which is less than half the value of IVV’s turnover at 5.00%. Both figures are relatively low, though, indicating that there is minimal trading going on behind the scenes.
Although sometimes it may be considered good to have a high turnover indicating a fund is more actively managed than is the case for both SPY and IVV, it has consistently been found that actively managed funds are unlikely to outperform the S&P 500.
In this section, we will compare the composition of each fund.
SPY’s fund is composed of 84% large-cap stocks – an overwhelming majority. The rest (16%) are mid-cap stocks, leaving no room for small-cap stocks. This is no surprise considering the fact that the S&P 500 tracks 500 of the largest companies listed on US markets.
IVV’s fund composition is identical to that of SPY – 84% large-cap, 16% mid-cap and no small-cap stocks. Both track the S&P 500, so this is no surprise.
It’s both important and interesting to consider industry exposure for the ETFs as it provides insights into the dominant industries in the US as well as the diversification of the ETFs, which is tied to risk.
Looking at SPY’s industry exposure, it’s clear that technology is by far the most dominant industry within the fund, with nearly 25% of companies. The next highest is the financial services industry, with just under 14% of the companies in the S&P 500 falling under this category. Closely trailing is the healthcare industry at around 13.5%.
In total, the ETF has stocks spread across 11 different industries, with some industries (like technology) playing a much more influential role in the performance of the ETF.
It’s clear that IVV’s industry exposure is identical to that of SPY. Thus, its diversification is also the same, and it is exposed to many of the same risks.
The industries that are least represented within the ETFs are basic materials, real estate, utilities, and energy, with each industry hovering just above the 2% mark as regards the ETFs’ composition.
SPY vs. IVV – Analysis
It’s always important to consider the risks associated with an investment. Accordingly, we will now look at two important risk metrics: fund volatility and maximum drawdown.
|Downside Deviation (monthly)||2.93%||2.92%|
Volatility appears almost identical, as SPY’s monthly volatility is 4.31% compared to only 4.29% for IVV. Annual volatility accentuates this difference, with SPY’s annual volatility at 14.91% whereas IVV’s annual volatility is 14.86%. The difference is more than twice that of the monthly volatility, at 0.05%.
SPY has a maximum drawdown of -50.80%, only 0.02% less than IVV, which has a maximum drawdown of -50.78%.
The graph below depicts the annual drawdowns of SPY and IVV.
Looking at the graph, it is almost impossible to distinguish between the red line (representing IVV) and the blue line (representing SPY). Based on this, there is no strong risk associated with one ETF compared to the other.
SPY vs. IVV – Performance
Having compared SPY and IVV across several metrics concerning fund make-up and risk, let’s look at how these affect the ETFs’ returns.
First, let’s look at the annual returns for each ETF through the graph below.
Similar to the metrics discussed earlier, the annual returns of SPY and IVV are almost identical. At times it appears that IVV marginally outperforms SPY, but the difference is almost negligible.
Lastly, let’s move on to portfolio growth over the last two decades.
The following graph depicts the accumulated returns of two portfolios starting at $10,000. One, represented by the blue line, has 100% of the funds allocated into SPY and the other, represented by the red line, has 100% of the funds allocated into IVV.
Up until 2018, it was impossible to distinguish between the two portfolios, indicating identical growth. After this point, it is still very difficult to distinguish between the two, but it appears that IVV has a marginally higher portfolio balance.
|Portfolio||Initial Balance||Final Balance||CAGR|
The figures above confirm what was concluded from the graph: the $10,000 portfolio for IVV grows marginally more than that of SPY (to $49,740.00 compared to $49,361.00). Therefore, there is a difference of $379. The compound annual growth rate for IVV is higher too, at 8.10% compared to 8.07% for SPY.
Over a period of 20 years (as in the above example), the extra money gained from IVV is not massive but may still sway investors given the near-identical nature of the ETFs.
The main differences between SPY and IVV were in their expense ratios, dividend yields, portfolio growth, and performance. Risk metrics are less relevant as the ETFs track the same stocks and are therefore prone to the same risks.
The most important deciding factor is investment style.
Here’s why an investor may opt for SPY:
SPY is better for investors who are more inclined to buy and sell within a short time frame. It’s the most liquid S&P 500 ETF on the market. The differences in expense ratios, portfolio growth, performance, and other factors where SPY falls short compared to IVV are often negligent in the short run.
And why might an investor opt for IVV?
As IVV has lower fees and marginally outperforms SPY, it is best for investors looking to hold the ETF for the long run. Lower fees appear negligible but may actually make a big difference when investing for decades. Additionally, IVV reinvests dividends prior to quarterly payouts meaning that returns are decent despite having a slightly lower dividend yield than SPY.
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