VOO Vs. SPY: A Comparison Of Two S&P 500 ETFs

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What is a good investment strategy? How can you increase your investment portfolio with the appropriate diversification and risk-adjusted to your appetite and needs? Let’s check out VOO vs. SPY and which one best suits your investment needs.

When choosing investing portfolios, you always want to get the best investments available for you. Past performance and a high yield are always something that most investors consider so as not to lose money.

But what publicly traded investment opportunities are out there for you to form part of your investment portfolio?

S&P ETFs are very popular with investors. They track the S&P 500 index and include stocks from the 500 biggest companies in the US. In case of a market crash, S&P ETFs are likely to survive. They are also cheaper to maintain.

Two of the most popular Exchange Traded Funds (ETFs) in the market today are the Vanguard S&P 500 ETF, commonly referred to as VOO, and the SPDR S&P 500 Trust ETF, also known as SPY. These two ETFs track the biggest large-cap index. Their goal is to help investors get exposure to the general US market and diversify their portfolios easily.

Since both of them track the S&P 500, some may assume that they are interchangeable. However, they also have their differences. Here is a comparison of the two ETFs.

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VOO Vs. SPY: Similarities

Let’s look at the similarities of the two S&P 500 ETFs:

Both track the S&P 500 index that is made of the top 500 stocks traded in the US market and try to mirror it. They do this very well and only skew off the index by around 0.1% per year.
About 27% of the funds are invested in the top 10 holdings. This usually consists of tech companies and popular American companies such as JP Morgan Chase and Johnson and Johnson.
About 6% of the ETFs are invested in a single stock, meaning that it’s quite diversified. Although slightly tech-heavy due to the S&P weighting, that is investing about 27% of funds in technology.

VOO: Vanguard 500 Index Fund ETF

VOO is one of the most popular Vanguard index funds. The fund seeks to measure the performance of the Standard and Poor 500 Index that tracks the returns of large-cap stocks. The fund uses an index investment approach of the S&P 500, a benchmark that is well recognized in the US. It tries to copy the target index as it invests all or part of its assets in the stocks that make the index and holding stocks in almost the same portion as the index weighting.

However, like other S&P 500 funds, it defines the S&P 500 as seen by the S&P committee. This means that it also has mid-cap stocks. Still, it provides great coverage to the US large-cap.

Its one downside is its transparency as VOO delays in disclosing its holdings. This is unlike its peers that disclose daily. However, when its dividends are paid, it reinvests very well.

SPY: SPDR S&P 500 Trust ETF

When investors think of ETFs, one of the first ones that come to mind is SPY. This is one of the most liquid ETFs, is easy to trade, and has one of the lowest trading costs in the industry at 0.09%.

Business man pressing high tech type of modern graph — Image credit: jannystockphoto/Depositphotos.

The big block trades can move the smaller ETFs’ shares, which isn’t a concern for a product such as SPY. The fund tracks the very popular index, the S&P 500.

The S&P committee chooses the 500 securities representing the large-cap space in the United States and not just the 500 biggest by market capitalization. However, the index still provides great exposure to the best large-capitalization stocks in the US. Investors should note that SPY is a unit investment trust (UIT) whose structure is completely viable.

SPY is a UIT and should fully copy its index and do away with the small risk and reward associated with securities lending. It also doesn’t reinvest portfolio dividends between distributions, resulting in a cash drag that will hurt its performance slightly in up markets and downtrends. Therefore SPY is a preferred Vanilla trading vehicle.

VOO Vs. SPY: Key Differences

Here are some of the key differences between the two ETFs.

SPY has a great option volume, making it easier to speculate using the S&P 500 movement options. It also lowers the risk as compared to the stocks that have few options, such as VOO. It also makes it easier to make selling covered calls against stocks.
Even though both funds are very liquid, they differ in terms of their liquidity level. VOO has over 1 billion shares traded and $334.8 billion assets under management (AUM). On the other hand, SPY has shares worth over $24 billion and an AUM of $177.9 billion. Therefore, SPY has a bigger AUM.
The cost of SPY is $0.01 per share, while VOO costs $0.02 per share. This means that SPY is usually less costly to trade than the two and is the best ETF for large institutions. If you are an average trader, this may not mean much as a price difference of $0.01 per share on a share price of $400 may not make much difference.
VOO is a good choice for holding in the long-term or for passive investment. However, if your goal is to sell covered calls against it or buying and selling options, you may want to consider SPY.

VOO Vs. SPY: Composition Differences

The top 5 holdings in both SPY and VOO are Microsoft, Apple, Amazon, Facebook, and Alphabet (Google). These are usually the biggest companies in the United States and the entire world by market capitalization.

The total assets of these 5 companies make up 20% of the total assets of the fund. The percentage in the top 5 holdings differ as follows:

Holding	SPY	VOO
Microsoft	5.66%	5.67%
Apple	5.08%	5.09%
Amazon	4.27%	4.27%
Facebook	2.04%	2.04%
Alphabet	1.67%	1.67%

Therefore, it’s clear that the two ETFs have an almost similar composition.

VOO Vs. SPY: Performance Differences

When we look at their annualized returns, both ETFs perform closely to the benchmark, even though VOO has a slightly better performance. The S&P performance is usually very consistently strong because of the dynamism and strength of the US economy, public equity market, and corporate sector. Here is a comparison table of the performance of the two

	One year	Three years	Five years	Ten years
VOO	18.4%	14.14%	15.19%	13.84%
SPY	18.23%	13.94%	15.03%	13.72%

VOO Vs. SPY: Fees

The expense ratio of VOO is lower at 0.03% than that of SPY at 0.9%. This translates into higher annual returns. However, it has a lower option volume. SPY is also the most liquid ETF for options trading.

VOO Vs. SPY: Frequently Asked Questions

Here are some frequently asked questions on VOO vs. SPY:

Which Is Better, SPY Or VOO?

The corporate structure of VOO is stronger, and it has a lower expense ratio. This makes it a good buy for many investors. On the other hand, the two funds are very similar and, therefore, have identical performance.

Man Investing MSN — Image Credit: iwatchwater/Depositphotos.

Are SPY And VOO The Same?

SPY and VOO are the biggest S&P 500 index funds. Both of them track similar indexes and have identical strategies, holdings, and performances.

Does VOO Pay A Dividend?

Yes, VOO pays a dividend on the 27th of December. In the previous year, it had an annual dividend of $5.29 per share.

Conclusion – VOO Vs. SPY

VOO is a great fund for people who need to buy the S&P 500 index due to its lower volatility and a potentially better annual return. However, the difference between the two isn’t so significant. Therefore, if you already bought SPY and are getting some great gains, the tax problem of selling SPY to buy VOO may not be worth it.

If you are a trader whose goal is to invest in strategies such as options (derivatives), you may want to consider SPY instead of VOO as it has a bigger trading volume, particularly in options. Higher fees don’t make a big difference when trading as you only hold the fund for smaller periods. Therefore, SPY is great for options trading, while VOO is great for passive investing in the long term.

However, if you have no plans of holding in the long-term and instead plans to trade more, then you may want to consider SPY. When you are regularly trading, each little spread will translate into more profit. The expense ratio doesn’t make a lot of difference. But you should bear in mind that past performances are not always an indicator of future performances.

Regardless of which one, these asset classes are equities that you can consider. Any portfolio manager or financial advisor will tell you that these investment products can be part of your investment objective, so long as they are aligned with your risk tolerance and financial capacity. Having a diversified portfolio or a diversified investment is important, especially considering the volatility of the market. Learning how to hedge is the best way to invest your hard-earned money.

The bottom line is that these investment strategies can be beneficial for your financial goals and even for your retirement accounts.