VOO vs. SPY: Which S&P 500 ETF is The Better Bet?

Comparing Vanguard S&P 500 ETF (NYSEMKT:VOO) to State Street SPDR S&P 500 ETF Trust (NYSEMKT:SPY) reveals two nearly identical portfolios where the primary distinctions are expense ratios and fund management structures.

Both funds serve as foundational building blocks for long-term investors by tracking the S&P 500 Index, which covers approximately 80% of U.S. market capitalization. While they hold the same basket of large-cap American companies, their costs and historical liquidity profiles differ slightly, making the Vanguard fund potentially more attractive for long-term buy-and-hold strategies, whereas the State Street trust remains a primary vehicle for high-volume institutional traders.

Snapshot (cost & size)

The Vanguard fund is more affordable for retail investors with an expense ratio of 0.03%, compared to 0.09% for the SPDR trust. While this 0.06 percentage point gap may seem negligible in the short term, it can compound over decades for investors with significant capital.

Performance & risk comparison

What's inside

Vanguard S&P 500 ETF, launched in 2010, holds 505 stocks and aims to replicate the S&P 500 Index performance precisely. Its largest positions include Nvidia (NASDAQ:NVDA) at 7.84%, Apple (NASDAQ:AAPL) at 6.44%, and Microsoft (NASDAQ:MSFT) at 4.89%. The portfolio heavily favors the technology sector at 35.67%, followed by financial services at 11.64% and communication services at 11.25%. This fund is managed to minimize tracking error while providing broad exposure to the largest companies in the domestic market. Over the trailing 12 months, the fund has paid $7.13 per share in dividends.

The State Street SPDR S&P 500 ETF Trust launched in 1993, was the first exchange-traded fund listed in the United States and currently holds 503 positions. It maintains a similar sector tilt with technology at 39.05%, financial services at 11.07%, and communication services at 10.64%. Its top holdings include Nvidia at 7.98%, Apple at 6.96%, and Microsoft at 4.81%. The SPDR trust has paid $7.38 per share over the trailing 12 months. Because it is structured as a unit investment trust, it has slightly different rules for dividend reinvestment compared to the Vanguard fund.

Which fund is the better buy?

The S&P 500 Index is the most-tracked index by active and passively managed funds in the world. There are plenty of choices out there for gaining exposure to what, for most investors, is likely a core component of their portfolio.

The Vanguard and State Street offerings are two of the biggest and best choices for building a portfolio. They both offer rock bottom expenses, reflect the S&P 500 index close to flawlessly, and are large enough to be liquid to even the largest investor’s needs.

The winner here, however, is the Vanguard S&P 500 ETF for its lower expense ratio, which can be meaningful for investors over the long-term and at scale. You see the benefit of lower costs in the edge Vangaurd’s VOO has in every performance time frame. VOO beats SPY in year-to-date, one-year, three-year, five-year, and 10-year performance. Granted, the difference is just 0.06% over 10 years, at 15.61% for VOO and 15.54% for SPY, but that’s real money to investors.
Of course, not every investment decision can be made in a vacuum. If you only have access to SPY because of offerings in a retirement or other sponsored account, that’s ok: VOO and SPY come as close as any traded product can to replicating the performance of the S&P 500 Index.

For more guidance on ETF investing, check out the full guide at this link.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.