SPY and QQQ are two of the biggest ETF out there. Both are in the top 100 most traded funds and have net assets of several billion dollars. But what’s the difference between SPY vs. QQQ and which fund actually performs better?
SPY has an expense ratio of 0.09% while QQQ’s is significantly higher at 0.20%. In addition, SPY is the larger of the two ETFs with more than 300 billion dollars in assets under management. Overall, however, QQQ has yielded higher returns with a compound annual growth rate (CAGR) of 7.32% vs. 7.12% for SPY
In the parts that follow, I’ll go over the key distinctions between SPY and QQQ, as well as their composition and industry exposure. We’ll look at annual returns and cumulative portfolio growth in the latter sections of this article, as well as risk measurements like volatility and drawdowns.
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SPY vs. QQQ – Overview
SPDR S&P 500 (SPY) strives to produce investment outcomes that, before fees, are broadly comparable to the S&P 500 Index’s price and yield performance. The trust aims to meet its investment objective by holding a portfolio of common companies that are included in the index, with each stock’s weight in the portfolio roughly matching its weight in the index.
Invesco QQQ ETF (QQQ) aims for investment results that are similar to the NASDAQ-100 Index’s price and yield performance. The adviser modifies the securities from time to time to adapt to periodic changes in the identity and/or relative weights of index securities in order to preserve the composition and weights of the securities in the trust (the “securities”) and the stocks in the NASDAQ-100 Index. The securities element of a portfolio deposit’s composition and weighting are also modified to conform to changes in the index.
What’s The Difference?
| SPY | QQQ | |
| Category | Large Blend | Large Growth |
| Issuer | SPDR State Street Global Advisors | Invesco |
| AUM | 374.03B | 174.51B |
| YTD | 19.94% | 17.81% |
| Yield | 1.30% | 0.49% |
| Fees | 0.09% | 0.20% |
| Turnover | 2.00% | 7.68% |
Category
SPY is a Large Blend ETF. The fund consists of a large number of large-cap stocks and is focus on maintaining a blend of the top 500 companies by market cap in the United States.
QQQ is a Large Growth ETF. Since QQQ follows the top 100 stocks in the NASDAQ it is much heavier weighted towards technology companies. As a result, it tends to be more focused on short- and long-term growth as its main objective.
Issuer
SPY is issued by SPDR State Street Global Advisors. SPDR is one of the biggest fund managers and holds the most total assets of investors right next to Vanguard. Currently, SPDR manages the most popular ETF by AUM: SPY.
QQQ is issued by Invesco. While not quite as big as SPDR, Invesco also manages several billion-dollar funds around the world. Invesco has been focused on creating technology funds and high-growth funds that generally aim to outperform the market.
Assets Under Management
SPY has 374.03B total assets under management. With almost 400 billion dollars of investor’s assets under management, SPY is the number one fund worldwide. It is highly liquid and traded on all common markets, mitigating any liquidity risk that investors might face.
QQQ has 174.51B total assets under management. Again, QQQ can’t quite reach the heights of SPY with regards to total assets but comes in as a solid second on the world stage of exchange-traded funds. Likewise, liquidity is a non-issue with this ETF.
Year-to-date Return
SPY has a Year-to-date return of 19.94%. With the incredible economic post-covid boom SPY has reaped the majority of the upswing through its base top 500 strategies.
QQQ has a Year-to-date return of 17.81%. Although tech stocks tend to outperform the market over time, they have not done so in the past year. In fact, QQQ has a return of more than 2% lower than SPY over the same period.
Dividend Yield
SPY has a dividend yield of 1.30%. With dividends at all-time lows, SPY has little to offer for dividend investors. During the covid stock market dip SPY briefly reached a dividend yield of close to 5%.
QQQ has a dividend yield of 0.49%. It is not surprising that a more growth-focused ETF has been generally paying out less in dividends and reinvesting more into the company growth.
Expense Ratio
The expense ratio is one of the most important metrics when comparing funds as it represents the amount of fees investors must pay for holding the fund.
SPY has an expense ratio of 0.09%. With an expense ratio of under 0.1% SPY is well below the market average of 0.36%. In fact, there are not many other funds that can compete with SPY on that level. The only one that comes to mind is Vanguard’s VOO.
QQQ has an expense ratio of 0.20%. Tech-focused funds tend to have higher fees as usually there is more maintenance required to follow the fast-paced tech market. With fees of 0.2% QQQ is more than twice as expensive as SPY.
Turnover
The turnover indicates how much the fund is traded on exchanges. A lower turnover indicates that investors tend to buy and hold the fund rather than follow an active investment strategy.
SPY has a turnover of 2.00%. SPY has a comparatively low turnover rate of just 2%. Investors who buy SPY tend to hold the fund for the long term and are less likely to sell in an economic downturn.
QQQ has a turnover of 7.68%. QQQ, on the other hand, has a significantly higher turnover than SPY; almost four times as high. QQQ investors tend to focus more on the short-term business cycles and are quick to sell QQQ again should the fund not perform as expected.
Fund Composition
We’ll examine the not-so-subtle differences in fund composition between SPY and QQQ in this section.
SPY holds mostly large-cap stocks with a mid exposure to the mid-cap market segment. However, a whopping 84% of holdings are large companies and only around 16% represent the lower-cap market segment.
Small-cap companies are not represented at all in SPY as it follows an index that only tracks the top 500 largest US companies.
The distribution with QQQ is even more extreme: 96% of its holdings are large-cap stocks and just 4% are related to the mid-cap market segment. Like SPY, QQQ holds no small-cap stocks.
Industry Exposure
Diversification can be aided by exposure to several industry sectors, such as in fund composition. We’ll look at how the composition differences between SPY and QQQ are reflected in their industry exposure.
SPY’s industry exposure represents that of the S&P 500 and the general broad U.S. market. Tech stocks make up a significant percentage of the total market. However, there are also other sectors such as financial services or healthcare that SPY is exposed to.
Only a slight percentage of SPY’s holdings comes from the energy and real estate sector, reflecting the state of the top 500 U.S. companies.
QQQ tells a different story. This fund’s industry exposure is heavily tilted towards technology which makes up almost 50% of the fund’s holdings. The remainder is made up mostly of consumer cyclical and communication services stocks.
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SPY vs. QQQ – Analysis
The volatility of a fund and its maximum drawdown are essential parameters for risk-averse investors to consider when selecting an investment vehicle. The first rule of investing, according to a well-known investor, is to avoid losing money.
| Metric | SPY | QQQ |
| Volatility (monthly) | 4.34% | 6.75% |
| Volatility (annualized) | 15.02% | 23.38% |
| Downside Deviation (monthly) | 2.95% | 4.70% |
| Max. Drawdown | -50.80% | -81.08% |
Volatility
SPY has an annualized volatility of 15.02%. While this number may appear large at first, keep in mind that some stocks can fluctuate by 2-3% daily. Moreover, this represents basically the total U.S. stock market volatility as the top 500 companies drive the market due to their enormous market cap.
QQQ has an annualized volatility of 23.38%. On the other hand, QQQ has much larger volatility. Technology stocks tend to move more in cycles and some years may be far worse than others. However, in the long term these differences in volatility usually even out.
Drawdown
SPY has a maximum drawdown of -50.80%. This drawdown spans across the entire lifetime of the backtested portfolio from the year 2000 to the present and this includes the market crash of 2008/2009. Here, SPY experienced its biggest drawdown.
QQQ has a maximum drawdown of 81.08%. Likewise, QQQ experiences its largest drawdown in the years 2008/2009. But compared to SPY, QQQ had to deal which much heavier due to its heavy exposure to the technology sector.
SPY vs. QQQ – Performance
Now that we’ve looked at how the composition, exposure, and risk of SPY and QQQ differ, the last – and arguably most significant – the question is how these variations affect each fund’s returns.
Annual Returns
In most positive years, QQQ appears to come out ahead significantly. However, this pattern also repeats for the negative years, and here the losses QQQ experienced were frequently much larger than those of SPY. Especially in the years 2000-2003 when the tech bubble burst investors of QQQ were at a significant disadvantage relative to SPY investors.
Portfolio Growth
| Portfolio | Initial Balance | Final Balance | CAGR |
| SPY | $10,000.00 | $44,558.00 | 7.17% |
| QQQ | $10,000.00 | $45,958.00 | 7.32% |
The above chart and table show the outcome of a portfolio backtest of $10,000 from 2000 to 2021. What’s striking is that the final outcome shows QQQ ahead of SPY by more than $1,000 and a compound annual growth rate that is higher by almost 0.2%.
However, for most of the portfolio duration QQQ was significantly behind SPY. This is mostly due to the early heavy losses this portfolio would have sustained in the years 2000-2003. Would this event have not occurred investors in QQQ would be even more ahead than they are now.
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Conclusion
While SPY and QQQ are two of the biggest ETF they focus on two entirely different market segments. SPY aims to provide broad market exposure to the 500 largest U.S. companies while QQQ focuses on the technology niche.
For long-term growth and future-proof investing but also increased risk and volatility, QQQ might be your pick. For broad market exposure and long-term holding SPY definitely has the deck stacked in its favor.
Which of these funds you decide to invest in ultimately depends on the market exposure you wish to achieve.
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