SPY vs QQQ: Index Fund Faceoff

Should you’re weighing SPY vs QQQ, you’ve most likely determined to place a few of your cash into an index fund. For many traders, that’s a sound determination. You’ll get a extremely diversified portfolio even with a small funding, and also you received’t have to fret about assessing and selecting shares.

However which of those funds is best for you? Let’s take a better look, beginning with the fundamentals.

SPY vs QQQ: By the Numbers

Full Title SPDR S&P 500 ETF Belief Invesco QQQ Belief
Index Tracked S&P 500 NASDAQ-100
Property Beneath Administration* $400.4 billion $154 billion
Variety of Holdings 505 102
Expense Ratio .09% .20%
Dividend Yield* 1.51% 0.61%
Issuer State Road International Advisors Invesco
* As of Sept. 2023

5-12 months Efficiency

SPY vs. QQQ Five-Year performance chart

SPY vs QQQ: What’s the Distinction?

Essentially the most outstanding distinction between SPY and QQQ is that they observe totally different indices:

  • SPY tracks the S&P 500. The S&P 500 is an index of 503 of the biggest firms within the US. The businesses represented are listed on the New York Inventory Trade (NYSE), the NASDAQ, and the Chicago Board Choices Trade (CBOE) BZK Trade.
  • QQQ tracks the NASDAQ-100. The NASDAQ-100 tracks 101 of the biggest non-financial shares buying and selling on the NASDAQ change. The NASDAQ is taken into account a tech-heavy change but additionally consists of non-financial firms.

Each of those indices and each ETFs are market cap weighted, which implies that they provide bigger firms a heavier weighting.

SPY vs QQQ: Sector Publicity

SPY and QQQ break down their sector descriptions in barely totally different phrases.

SPY Sector Breakdown

Sector Weight
Data Know-how 27.16%
Well being Care 13.41%
Financials 12.99%
Client Discretionary 10.70%
Communication Providers 8.80%
Industrials 8.28%
Client Discretionary 6.68%
Power 4.59%
Utilities 2.57%
Supplies 2.42%
Actual Property 2.40%

QQQ Sector Breakdown

Sector Weight
Know-how 57.05%
Client Discretionary 18.67%
Well being Care 7.07%
Telecommunications 5.16%
Industrials 4.99%
Client Staples 4.46%
Utilities 1.27%
Power 0.71%
Actual Property 0.3%
Primary Supplies 0.27%

One factor that instantly stands out in these breakdowns is that QQQ is closely concentrated within the know-how and shopper discretionary sectors. Each of those sectors are inclined to outperform throughout bull markets however could expertise important drops throughout bear markets.

Monitoring totally different indices is the basic distinction within the SPY vs QQQ equation.

  • SPY tracks a bigger variety of firms from a wider vary of company sectors. Which means it’s extra diversified, has the next dividend (tech firms usually don’t pay dividends), and could possibly be thought-about a extra defensive place, much less prone to lose in down markets.
  • QQQ tracks a smaller variety of firms with a larger focus in tech. That makes the ETF extra prone to outperform in expansionary circumstances, when tech tends to outperform, and likewise makes it a larger danger in bear markets when high-flying tech firms have additional to fall.

Neither of those choices is basically higher or worse. They supply publicity to barely totally different sectors of the market, and that results in totally different efficiency traits.

SPY vs QQQ: The Similarities

SPY and QQQ have loads in widespread. SPY is the biggest single ETF buying and selling on US markets, and QQQ is the fifth largest. They rank as the primary and second-most traded funds within the nation by common every day quantity.

Each funds are managed by massive funding companies with in depth observe information: SPY by State Road International Advisors and QQQ by Invesco. Should you’re in search of massive, extremely liquid funds with credible administration, each of those ETFs will go your display screen.

There are additionally much less apparent similarities, stemming from three primary details:

  1. Many firms that commerce on the NASDAQ are a part of the S&P 500.
  2. Main tech companies from the NASDAQ are among the many largest firms within the US.
  3. Each the S&P 500 and the NASDAQ-100 – and the funds that observe them – are weighted by market cap.

What does that imply in apply? Let’s have a look at the ten largest holdings of SPY and QQQ.

High Holdings: SPY vs QQQ

Apple Inc (7.1%) Apple Inc (11.04%)
Microsoft Corp (6.51%) Microsoft Corp (9.51%)
Amazon.com Inc (3.24%) Amazon.com Inc (5.38%)
NVIDIA Corp (2.84%) NVIDIA Corp (4.15%)
Alphabet Inc Class A (2.14%) Meta Platforms Inc Class A (3.76%)
Tesla Inc (1.87%) Tesla Inc (3.14%)
Meta Platforms Inc Class A (1.84%) Alphabet Inc Class A (3.12%)
Alphabet Inc Class C Alphabet Inc Class C (3.08%)
Berkshire Hathaway Inc Cass B (1.81%) Broadcom Inc (2.96%)
United Well being Group Inc (1.3%) Costco Wholesale Group (2.15%)

These are very comparable lists, with all however two firms showing on either side in very comparable order. QQQ has greater concentrations in these firms, as anticipated from a fund with fewer holdings total.

If the holdings are so comparable what makes these funds totally different? The reply is just that after the highest ten, the holdings diverge considerably. Let’s have a look at the following ten holdings for every fund.

ExxonMobil Corp (1.27%) PepsiCo Inc (2.09%)
Eli Lilly and Firm (1.21%) Adobe Inc (2.04%
JP Morgan Chase & Co (1.17%) Cisco Techniques Inc (1.89%)
Johnson & Johnson (1.07%) Comcast Corp Class A (1.61%)
Visa Inc (1.04%) Netflix Inc (1.46%)
The Procter & Gamble Firm (0.99%) T-Cell US Inc (1.42%)
Broadcom Inc (0.95%) Superior Micro Gadgets Inc (1.35%)
Mastercard Integrated (0.92%) Texas Devices Ince (1.26%)
The Residence Depot Inc (0.85%) Amgen Inc (1.24%)
Chevron Company (0.82%) Intel Corp (1.24%)

Right here we begin to see an actual divergence within the holdings of the 2 funds. We additionally see the larger diversification of SPY: the QQQ record continues to be dominated by tech, whereas SPY has a powerful presence in industries like power, financials, and prescribed drugs.

Which Is Greatest for You?

Each SPY and QQQ are strong decisions for an investor who’s in search of a high quality index fund. Each are among the many largest and most outstanding ETFs within the nation, and each are extremely liquid.

Your selection shall be primarily based on what you might be in search of in an funding.

  • SPY is a comparatively conservative, extremely diversified ETF with very low administration prices, the next dividend yield, and fewer potential for dramatic losses throughout a market downturn.
  • QQQ is a extra aggressive, much less diversified fund centered on main tech firms. This offers it larger potential for positive aspects in bull market intervals but additionally opens up the potential for important losses in a bear market.

The way you see the markets makes a distinction: in case you suppose markets are set for an expansionary part, QQQ could be a better option. Should you see potential for a market turndown and also you wish to reduce prices and dangers, SPY is perhaps your ETF of selection.

If you’re weighing SPY vs QQQ and also you’re having hassle making up your thoughts, take into account allocating a portion of your portfolio to every fund. Maintaining a number of ETFs in your portfolio can present the perfect of each worlds!

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