Are you looking to invest and grow your money? Choosing ETFs as the best option, which is the better ETF fund in a QQQ vs. SPY faceoff?
Both QQQ and SPY are popular funds among investors. Plus, recently, the stock prices for these two different funds have both been performing well, making the decision even more complex.
Invesco QQQ Trust, or QQQ, offers an investment portfolio comparable to the Nasdaq 100 Index. SPDR S&P 500 ETF Trust, or SPY, offers investors exposure to 500 of the biggest companies in the US and makes up for almost 75% of the country’s stock market value.
In this article, we will be describing each one’s important features, analyzing the similarities and differences between them, and offering our best recommendations on ETF investing. Without any further ado, let’s get started.
For some background knowledge, you can read here more about stocks, bonds, and ETF (Exchange-Traded Fund) from our previous posts.
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QQQ: Invesco QQQ Trust Series 1
QQQ is an ETF offered by Invesco, which tracks the NASDAQ 100.
The NASDAQ 100, an index of the 100 biggest non-financial stocks listed on the NASDAQ stock exchange, follows the biggest tech companies in the United States.
This ETF facilitates access to several pioneering and innovative companies, including top tech concerns like Tesla, Nvidia, Microsoft, and the famous FAANG stocks.
Invesco’s QQQ is one of their most popular and biggest ETFs today. It has more than $205 billion in assets and offers a dividend yield of around 0.45%.
QQQ has an expense ratio of 0.2%.
The total number of stocks for QQQ is 100, and the top ten holdings make up 52% of the fund. While QQQ may be comparatively more volatile than SPY, it has outperformed SPY for the last ten years.
SPY: SPDR S&P 500 ETF Trust
The SPY ETF is a fund offered by the State Street Global Advisors Trust Company and tracks the S&P 500 Index. Established in 1993, the SPY Fund currently has more than $424 billion in assets.
Similar to QQQ, SPY also focuses on the largest tech companies like Google, Microsoft, and Apple. SPY also has other sectors like various consumer sectors, finance, energy, etc.
SPY is an ETF by the State Street Global Advisors Trust Company. Tracking the S&P 500 Index, it has 506 stocks in total. The top ten holdings are around 28% of the fund, and it has a dividend yield of around 1.2%. On top of that, SPY has an expense ratio of 0.09%.
The SPY fund value has seen a sharp jump during the past year. There are several reasons for it. One is that Morgan Stanley and Goldman Sachs have done well in the financial sector, encouraging investors to expect a hike in the upcoming rates. The increasing oil and gas rates have led to a sharp rise in energy stocks. Both these developments have enhanced the SPY fund performance.
QQQ Vs. SPY: Key Differences
SPY and QQQ are top-rated funds with long-term investors. Both exchange-traded funds trade within the same day until the stock market hours end.
However, while both are ETFs, they are different. Here are a few of the key differences between the two ETFs.
- QQQ is offered by Invesco, while State Street Global Advisors Trust Company offers SPY.
- QQQ tracks the NASDAQ 100 Index, while SPY tracks the S&P 500 Index.
- QQQ has $172.68 billion in assets under management, while SPY has $379.57 billion.
- The expense ratio of QQQ is 0.2%, while the expense ratio of SPY is more low-cost at 0.09%.
- QQQ has a dividend yield of 0.45%, while SPY has a dividend yield of 1.2%.
- QQQ invests in 100 stocks and constitutes mainly tech companies, while the SPY has 500 stocks, making it more diverse.
From the above statements, we can see that SPY has a lower expense ratio than QQQ and a higher dividend yield as well.
QQQ Vs. SPY: Composition Differences
Regarding the composition of the two ETFs, QQQ is majorly oriented toward the technology sector. However, SPY is known for its diversification into multiple sectors and is a more broad-based fund.
QQQ holds around 100 stocks comprising the 100 largest US companies traded on the NASDAQ Exchange. It has fewer stocks in comparison to other ETFs. SPY holds five times as many stocks as QQQ, with around 506 holdings, comprising the largest companies in the United States.
In terms of percentage, QQQ constitutes 63% of technology, while SPY has only 34% of tech stocks. As a result, QQQ is a more concentrated fund, and its top ten holdings comprise around 52% of its entire portfolio. On the other hand, the top ten holdings for SPY are 28% of the whole portfolio, making it a more diversified portfolio.
The above values imply that the performance of QQQ is contingent on the performance of select stocks like Amazon, Apple, and Microsoft. If you invest in a stock with more holdings, like SPY, you are minimizing your risk and diversifying your portfolio.
QQQ Vs. SPY: Top 10 Holdings
Here’s the list of the top 10 holdings of the two funds, which track their particular indexes. The two funds share many companies; however, the respective weights vary.
|Alphabet A (Google)||1.75%||3.80%|
|Berkshire Hathaway B||1.51%||NA|
|Johnson & Johnson||1.27%||NA|
|JP Morgan Chase||1.2%||NA|
As you can see from the table, QQQ weights are almost twice as much as SPY for the major five holdings, including Apple, Microsoft, Amazon, Facebook, and Google. So, while QQQ is more tech-heavy, it also holds high weight in companies like Adobe, Tesla, PayPal, and Nvidia.
QQQ Vs. SPY: Performance Differences
From the table, we can see that the performance of QQQ is heavily contingent on the performance of the major players in the technology sector. So if the technology sector performs well, QQQ would also perform well.
This trend has been prevalent for the past decade, and QQQ has been exceeding SPY in terms of performance. During the last quarter of 2021, QQQ had an average return of 11.32%, where SPY only returned 11.02%. However, we cannot guarantee that the next decade will be similar to the past in terms of index fund performance.
Ever since it was formed in 1999, QQQ has displayed remarkable performance and has been consistently outperforming the S&P 500 Index. Due to its exceeding performance, long-term investors tend to prefer it over others, and currently, it ranks in the top 1% of the large-cap growth funds.
Here is a comparison of the performance of the two funds over different investment periods.
While the two funds have been performing differently during the last ten years, QQQ outperforms SPY by almost 5% annually. In the long term, the performance of QQQ has been better historically.
QQQ Vs. SPY: Fees
The expense ratio of QQQ is 0.20%, while the expense ratio of SPY is 0.09%. So, the difference between the expense ratios of the two funds is 0.11%, and QQQ costs more.
An important takeaway from the comparison is that while QQQ offers higher returns, it is more volatile and comes at a higher cost. But, if you are seeking high returns and can tolerate the high volatility, then QQQ can be a better option for you.
However, if you want more stable long-term returns, and lower risks, and costs, then SPY is perhaps a better option. Since it offers a diversified portfolio, it is less volatile in comparison to QQQ and enables you to lower your risk.
Frequently Asked Questions – QQQ Vs. SPY
Is QQQ A Good Investment?
QQQ is in the top 1% of the large-cap growth funds. It offers the highest possible returns and is one of the most popular investments with long-term investors.
What Is Better Than QQQ?
Invesco has launched the QQQM, which is a cheaper alternative to QQQ. While QQQ has an expense ratio of 0.20%, QQQM has an expense ratio of 0.15%, 0.05% less than QQQ. So, in terms of cost, QQQM could be a better option.
Is QQQ The Best ETF?
QQQ is the fifth most popular Exchange Traded Fund in the world, with around $177 bn worth of assets in holding. It offers a dividend yield of 0.45%.
Conclusion – QQQ vs. SPY: Your Choice
For the purposes of this article, QQQ is compared to SPY. If we only look at returns, QQQ provides a bigger return on your investment. However, comparisons on different bases, such as ROI, risk factors, fund management expenses, etc. clearly show that the two ETFs have their good and bad points.
In the final analysis–QQQ vs. SPY?–the choice is yours. Before investing, ask yourself: what are your investment objectives? Do you prefer low investment costs and low risks over potential gains? Then SPY is for you. If you care to spend and risk more for bigger profits, then go to QQQ.
Whichever ETF you choose, the most important thing is, by investing, you are taking the step to make the money work for you and securing your future financial freedom. As a fund investor, may you make the best choice for yourself!
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Marjolein is a financial consultant who has built over €4,000 monthly passive income and saves over 70% of her income. Read Radicals’ inspiring story, from stuck in the 9-to-5 to loving life. Feel free to send Radical a message at the bottom of this page