VOO vs. SPY - Which ETF Is Better?

VOO vs. SPY – Which ETF Is Better?

Lately, I have been on a kind of research frenzy to find the very best ETF out there. I’ve compared most of Vanguard’s top funds against each other and their competitors, but today we’ll tackle a comparison we haven’t seen before: VOO vs. SPY.

Both ETFs have similar goals and track the S&P500 Index. But what exactly is the difference between these two funds? And which one performs better overall?

Which ETF is better: VOO or SPY? Overall, VOO performs better. The main difference between VOO and SPY is that VOO has an expense ratio of only 0.03% while SPY has an expense ratio of 0.09%. This is reflected in the compound annual growth rate (CAGR): where VOO achieves a growth rate of 11.65%, SPY falls a little short at 11.60%.

Let’s look at this comparison in a bit more detail!

VOO vs. SPY – Overview

This article will compare some underlying facts that make up both funds such as their number of holdings and assets under management. We’ll then analyze their respective drawdowns and volatility, followed by a comprehensive review of the funds’ annual returns and cumulative performance.

Let’s get started!

What’s The Difference?

VOOSPY
NameVanguard S&P 500 ETFSPDR S&P 500 ETF
IndexS&P 500 IndexS&P 500 Index
Expense Ratio0.03%0.09%
IssuerVanguardState Street SPDR
StructureETFETF
Inception Date9/9/20101/22/1993
AUM$138B$269B
Holdings509505

Index/Assets

The Vanguard S&P 500 ETF (VOO) tracks the 500 largest U.S. companies by following Standard&Poor’s S&P 500 Index. The companies are selected by market cap. As a result, no small-cap companies are included in this ETF.

The SPDR S&P 500 ETF Trust (SPY) tracks the exact same index, the S&P 500.

Even though both funds track the same index there is a significant difference in the assets they have under management. At $269B, SPY has almost twice the amount of assets under management than VOO at $138B.

However, in comparison to all other ETFs out there both VOO and SPY fare very well. They consistently rank among the top 5 funds by net assets year over year:

Top 5 ETFs by Assets under Management

Expense Ratio

VOO has an expense ratio of 0.03%. This is considered the lowest sustainable ratio in the entire industry. Not only is Vanguard famous for low fees and excellent products, but they have also strived to reduce fees even further in the past decade.

SPY, on the other hand, has an expense ratio 0.09%. Although still somewhat inexpensive compared to a mutual fund, they have fallen behind the low-fee leader Vanguard. In fact, SPY’s expense ratio is more than three times that of VOO as their precise annual fees amount to 0.0945%.

SPY Expense Ratio

Issuer

VOO is issued by one of my favorites: Vanguard. Not only does Vanguard offer excellent financial products for retails investors at very low fees, but they also are structured in a way to uniquely benefit every investor.

SPDR is in of the oldest players in the ETF arena. But over the past decades, they have failed to keep up with the industry’s rapid development.

Number of Holdings

Since both ETFs follow the same index it is not surprising that the also hold nearly the same number of securities. VOO holds 509 stocks and SPY holds 505.

Fund Composition

Next, we’ll take a look at the funds’ composition and see if and how they differ in terms of their equity market capitalization.

VOO Equity Market Capitalization

VOO Capitalization

Close to 90% of the VOO’s market cap is made up of large-cap companies. Mid-cap stocks make up 12% and small-cap stocks fill the remaining non-visible 0.2%. This skew toward large-cap stocks is in line with the capitalization of the entire U.S. stock market.

Large-cap companies such as Apple, Amazon, Google and Facebook now make up a disproportionate percentage of the total market.

SPY Capitalization

SPY Capitalization

For SPY the picture looks similar. Small-cap companies are basically non-existent and the ETF is dominated by large-cap stocks.

One minor difference we see here is that VOO is made up of 0.1% more mid-cap companies. This is simply due to the fact that VOO holds 4 more mid-cap stocks than SPY (509 vs. 505) but has no significant effect on the funds’ total holdings.

Industry Exposure

Industry exposure can play a crucial role in balancing your portfolio and making sure you are not overexposed to one industry sector. In the following chart you can the industry distribution for VOO:

As alluded to earlier, the technology sector is by far the most exposed at close to 24% or almost one-quarter of all securities. Healthcare and financial services come in at a distance rank two and three.

Basic materials, real estate and energy stocks represent all less than 5% of the total market cap.

The following chart shows the industry exposure for SPY:

SPY - Industry Exposure

SPY’s industry exposure looks pretty much identical. Technology dominant and energy, utilities, etc as the tail light.

No surprise here since they essentially hold the same stocks.

VOO vs. SPY – Analysis

Perhaps the slight difference in fund composition, however, will have an impact on some of the risk metrics we’ll see below:

MetricVOOSPY
Volatility (monthly)3.79%3.79%
Volatility (annualized)13.13%13.13%
Downside Deviation (monthly)2.41%2.41%
Max. Drawdown-19.58%-19.43%
US Market Correlation11

Volatility

As we can see, volatility for VOO and SPY is exactly the same at 3.79% monthly and 13.13% annualized. However, it’s noteworthy that despite the equal volatility VOO still experienced a higher maximum drawdown of -19.58% compared to SPY’s -19.43%.

The only likely explanation for this is the 4 additional stocks VOO held during that time performed significantly worse than the rest of the S&P 500 index.

Drawdown

When we chart the above numbers, there is not much of a difference to be seen at all. You do have to look really closely to see the blue line peak out from under the red one in the latest drawdown in 2020.

VOO vs. SPY - Drawdowns

The small difference could also simply be due to some data or reporting inaccuracies. If we assume all data is correct, VOO did indeed experience a higher loss in the most recent market downturn.

VOO vs. SPY – Performance

In this final section of the article, we’ll take all of the above differences we have examined and will see how they affect the ETFs’ overall return and performance.

Annual Returns

VOO vs. SPY - Annual Returns

What’s striking at first sight is of course the similarity in returns each year.

However, if we look closely, we can see VOO come out ahead just very slightly in some years such as 2014, 2017 and 2019. On the other hand, as mentioned before, SPY managed to reduce losses in 2020.

If we add all of the annual returns how would our portfolio have looked like for each fund? Let’s find out!

Portfolio Growth

The graph below shows the accumulated portfolio growth for VOO and SPY starting with VOO’s inception in 2011. Unfortunately, since VOO is much younger than SPY we do not have a lot of historical data to include.

VOO vs. SPY - Portfolio Growth
PortfolioInitial BalanceFinal BalanceCAGR
VOO$10,000$27,978 11.65% 
SPY$10,000$27,846 11.60% 

As a result, $10,000 invested in VOO in 2011 would have yielded $27,978 while the same amount invested in SPY would have made you $27,846. That’s a difference of $132.

This is also reflected in the CAGR where VOO beats SPY by 0.05%.

Conclusion

So much data! And what conclusion do we draw from this?

The main takeaway here is that both funds are essentially the same in terms of their composition.

BUT, they have one significant difference is one that matters most to us retail investors: the expense ratio.

While VOO offers an industry low of 0.03%, SPY charges more than three times that at 0.0945%. And over time the additional fees add up. Over a period of 9 years with a portfolio of $10,000 they added up to $132.

So, which fund is better VOO or SPY? The answer is simple: the ETF with the lower fees, VOO.

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