SPY is the largest and perhaps the most popular S&P 500 ETF on the market. It is issued by State Street Global Advisors, who also issue the cheaper S&P 500 ETF known as SPLG. What are the differences between the two ETFs and why is one cheaper than the other?
SPY and SPLG are similar as they both track the S&P 500. The relevant differences between the ETFs are: (1) SPY has $374.03B of assets under management compared to only $10.72B for SPLG, (2) SPY has a higher expense ratio at 0.09% compared to only 0.03%, and (3) SPLG has a slightly higher dividend yield of 1.33% compared to 1.30% for SPY.
In this article, I will go into more depth as regards the differences between the ETFs while discussing their implications for investors. Specifically, I will discuss how the style of investing plays the biggest role in deciding between these ETFs.
SPY vs. SPLG – Overview
I will begin by analysing and comparing the make-up of each ETF before discussing fund compositions and industry exposure. We will also look at some risk metrics (such as volatility and maximum drawdowns) as well as annual returns in combination with portfolio growth.
What’s The Difference?
|Category||Large Blend||Large Blend|
|Issuer||SPDR State Street Global Advisors||SPDR State Street Global Advisors|
Both SPY and SPLG are large-blend ETFs meaning that most of the stocks they contain are of large-cap companies. Additionally, the ETFs are comprised of large-cap growth and value stocks.
Both ETFs are issued by SPDR State Street Global Advisors, which is the world’s fourth largest asset manager with around $4 trillion assets under management at present. State Street Global Advisors are one of the world’s most trusted asset management companies.
As both ETFs are issued by the same company, it’s clear that they are not in direct competition. The two ETFs “complement” each other, in the sense that they both attract a unique style of investor. This will be discussed further throughout the article.
Assets Under Management
One of the biggest differences between the ETFs are the number of assets under management. SPY is the world’s largest ETF by this metric, with $374.03B of assets under management. SPLG has only $10.72B assets under management, only a fraction of SPY’s value.
The biggest consequence of this difference is the liquidity of the ETFs. SPY is the most liquid S&P 500 ETF on the market, meaning that it is very easy to buy and sell within a short time frame. SPLG, on the other hand, is less liquid and therefore cannot be bought or sold as quickly. Therefore, investors looking to hold the ETF for a short time frame might be attracted to SPY rather than SPLG.
SPLG has a Year-to-date return of 20.01%, which is slightly higher than SPY’s Year-to-date return of 19.94%. As both ETFs track the S&P 500, it is no surprise that these values are similar. It is unlikely that the difference between these values will cause significant losses or gains for an investor, so it’s more important to consider other factors.
SPY has a dividend yield of 1.30%, slightly lower than SPLG’s dividend yield of 1.33%. This is an important difference, as it may represent potential for large gains if held in the long run. These figures suggest that SPLG is better suited for investors looking for a long-term investment.
SPLG’s dominance in the long run is especially noticed when the dividend yield is taken into consideration in combination with the expense ratio.
SPY’s expense ratio (its fees) is 0.09%, which is three times the expense ratio of SPLG at 0.03%. Although this difference may not seem substantial, it may result in massive gains when the ETF is held for a long time and significant funding is given to the investment.
SPLG’s fees are among the lowest in the market, rivalling IVV and VOO.
SPY has a turnover of only 2%, whereas SPLG has a turnover of 11%. Although 11% is not an incredibly high value, the difference between the ETFs’ turnovers is somewhat significant.
SPLG replaces significantly more of the stocks within its fund. Since its inception, SPLG tracked an index of 700 large-cap stocks and not the S&P 500. It is only as of recently it has transitioned to an S&P 500 ETF.
The difference in turnover may superficially suggest that SPLG has a more actively managed fund, but it’s crucial to consider the nature of the S&P 500 as it represents 500 of the largest companies in the US by market cap. A low turnover is not unexpected and should not be something to divert investors. Rather, it may represent stability and the strength of the most important companies in the US to continue to perform well for several years.
In this section, we will discuss the type of stocks that make up each fund.
SPY’s fund is made up of mostly large-cap stocks, at 84%. The remaining 16% of the fund is made up of mid-cap stocks. The fund contains no small-cap stocks. This is no surprise as the ETF tracks 500 of the largest companies in the US by market-cap.
SPLG’s fund is identical to that of SPY, since they both mirror the S&P 500. It’s made up of 84% large-cap and 16% mid-cap stocks.
Now we will look at the industries that make up each ETF.
Industry exposure of the ETFs provides insights to not only the S&P 500, but the dominant industries within the US. Additionally, it allows investors to understand how diversified their portfolio is, and how dependent their investment is on a particular industry.
SPY’s industry exposure is clearly dominated by the tech industry, at nearly 25%. In second place, at nearly 14%, is the financial services industry, which is closely followed by healthcare at about 13.5%.
In places four to seven are the consumer cyclical sector, communication services, industrials, and the consumer defensive sector at 11.8%, 11.2%, 8.6% and 6.3%, respectively. The bottom four (real estate, energy, utilities, and basic materials) are all between 2 and 3%.
As can be expected, SPLG’s industry exposure is identical to that of SPY. Its dominant sector is also technology. The two ETFs are thus diversified in the exact same manner and are prone to the same risks.
SPY vs. SPLG – Analysis
Now that we have discussed composition and make-up metrics, we will consider the risks associated with each ETF in addition to their arithmetic and geometric means and compare them to one another.
|Arithmetic Mean (monthly)||$0.01||$0.01|
|Arithmetic Mean (annualized)||11.81%||11.83%|
|Geometric Mean (monthly)||0.84%||0.84%|
|Geometric Mean (annualized)||10.58%||10.62%|
|Downside Deviation (monthly)||2.88%||2.85%|
|US Market Correlation||1||0.99|
It’s clear from the figures that there is very little separating SPY and SPLG as regards both arithmetic and geometric means.
The monthly arithmetic means for both SPY and SPLG is $0.01, and the annualized figure is 11.81% for SPY and 11.83% for SPLG. Similarly, the monthly geometric mean is 0.84% for both SPY and SPLG, and SPLG marginally takes the edge for the annualized value at 10.62% compared to 10.58% for SPY.
The difference in volatility between the two ETFs is very small. SPY’s monthly volatility is 4.29% compared to 4.26% for SPLG. At the annual scale, the difference between the volatility values is larger and indicates that SPLG is slightly more stable than SPY, but the difference is still not massive. SPY’s annualized volatility is 14.87%, compared to 14.75% for SPLG.
SPY has a maximum drawdown of -50.80%, which is 1% lower than SPLG’s maximum drawdown of -49.80%.
The graph below shows the annual drawdowns of SPY and SPLG.
As volatility and drawdowns often delineate the same conclusions, it is no surprise to see that SPY has a lower maximum drawdown than SPLG.
Prior to 2020, it’s clear from the graph that SPY had lower drawdowns and failed to recover from the 2008 crash as rapidly as SPLG. However, it is only as of recent that SPLG has tracked the S&P 500. Post 2020, it is impossible to distinguish between the two lines on the graph. It is expected that this trend will continue.
SPY vs. SPLG – Performance
In this section, we will look at the performance of each ETF. In particular, we will look at annual returns and portfolio growth.
The graph below depicts the annuals returns of the SPY and SPLG.
The annual returns are similar, but not identical for the two ETFs. Additionally, there appears to be little consistency. For some of these years, SPY had higher returns than SPLG, whereas during others, SPLG has higher returns. Prior to 2020, there are very few years when returns for the ETFs were identical.
This is no surprise, though, as prior to 2020 SPLG did not track the S&P 500. As soon as SPLG began tracking the S&P 500, the annual returns appear identical. This is the important trend to consider, as it is likely that it will continue in this manner. Any differences in returns are likely to be negligible.
Finally, we will discuss a hypothetical investment in which $10,000 is invested into each ETF and left for a period of 15 years, starting in 2006.
|Portfolio||Initial Balance||Final Balance||CAGR|
Based on the above figures, SPLG would have a final balance of $48,233.00 compared to $47,957.00 for SPY. SPLG would therefore have grown to a higher final balance, but the difference is nothing substantial given the time frame involved. The difference should not be a deciding factor in choosing between the two ETFs.
The compound annual growth rate is also higher for SPLG, at 10.62% compared to 10.58% for SPY.
Below is a graphical representation of the back-tested portfolio growth.
The graph confirms the aforementioned conclusion: the difference between the final balances is negligible. It is practically impossible to distinguish between the two lines on the graph, indicating near-indentical trajectories.
The differences to take into consideration when deciding between the two ETFs are: (1) the assets under management, (2) the dividend yield, and (3) the expense ratio.
When should I invest in SPY?
Investing in SPY is likely a good choice for investors who anticipate buying and selling the ETFs within a relatively short time frame. This is due to the enormous number of assets that SPY has under management, meaning that its liquidity is much higher.
When should I invest in SPLG?
If you are planning on holding the ETF for a long time, it’s definitely worth going for SPLG. Its expense ratio is only 0.03%, meaning that you are charged less for your investments. Additionally, the dividend yield is also higher for SPLG. Although the differences may appear small, the profits gained can be huge over a long period of time.
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