Two of the largest and most popular exchange-traded funds (ETFs) that track the S&P 500 index, the SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO), have both shown significant gains of over 14% year-to-date. While they track the same index, subtle differences in their structure, expense ratios, and trading volumes are important for investors to understand.
Key Takeaways
- Both SPY and VOO track the S&P 500 index and have delivered similar year-to-date returns of approximately 14.66% and 14.73%, respectively.
- Analyst consensus for both ETFs is a "Moderate Buy," with price targets suggesting potential upsides of around 9.8% for SPY and 10.5% for VOO.
- Key holdings with high upside potential for both funds include Moderna, Chipotle, and Dexcom.
- VOO generally has a lower expense ratio than SPY, which can lead to better long-term returns for buy-and-hold investors.
- SPY is structured as a Unit Investment Trust (UIT), while VOO is a traditional ETF, affecting how dividends are managed and reinvested.
Understanding S&P 500 Index Funds
Exchange-traded funds that track the S&P 500 are designed to mirror the performance of 500 of the largest publicly traded companies in the United States. These funds offer investors a simple way to gain diversified exposure to the U.S. stock market without having to purchase individual stocks.
Because they passively follow an index, these ETFs typically have lower management fees compared to actively managed funds. This makes them a popular choice for both new and experienced investors looking for long-term growth. SPY and VOO are two of the most prominent options in this category.
SPDR S&P 500 ETF Trust (SPY) Analysis
The SPDR S&P 500 ETF Trust, known by its ticker symbol SPY, is the oldest and one of the most traded ETFs in the world. Its high liquidity makes it a favorite among active traders who need to move in and out of positions quickly.
Performance and Analyst Outlook
Year-to-date, SPY has recorded a gain of approximately 14.66%. In the most recent five-day trading period, the ETF saw a modest increase of 0.18%. This performance reflects the overall strength of the U.S. stock market this year.
According to a weighted average of analyst ratings on its underlying holdings, SPY currently holds a "Moderate Buy" consensus. The average price target for the ETF is set at $734.19, which suggests a potential upside of 9.82% from its current level.
SPY Quick Facts
- Year-to-Date Gain: 14.66%
- Analyst Consensus: Moderate Buy
- Average Price Target: $734.19
- Implied Upside: 9.82%
Key Holdings and Future Potential
Since SPY tracks the S&P 500, its holdings are identical to the index. However, analysts have identified specific companies within the fund that may offer significant growth potential. The five holdings with the highest projected upside are:
- Moderna (MRNA)
- Chipotle Mexican Grill (CMG)
- Dexcom (DXCM)
- Fiserv (FI)
- Align Technology (ALGN)
Conversely, some holdings are seen as having potential downside risk. These include Paramount Skydance (PSKY), Intel (INTC), Tesla (TSLA), Warner Bros. Discovery (WBD), and Seagate Technology (STX). These assessments are based on current market conditions and company-specific forecasts.
Vanguard S&P 500 ETF (VOO) Analysis
The Vanguard S&P 500 ETF (VOO) is another leading fund that tracks the S&P 500. It is often preferred by long-term, buy-and-hold investors, primarily due to its lower expense ratio compared to SPY.
Performance and Analyst Outlook
VOO's performance is nearly identical to SPY's, with a year-to-date gain of 14.73%. Over the last five days, it experienced a slight decline of 0.06%. The minor differences in short-term performance are typical and often negligible over longer periods.
Similar to SPY, the analyst consensus for VOO is a "Moderate Buy." The average price target is $679.19, implying a potential upside of 10.51%. Both funds have received a "Smart Score" of eight out of ten, suggesting they are likely to outperform the broader market.
Dividend Payouts and Holdings
A notable feature of VOO is its dividend distribution. The ETF pays dividends quarterly to its shareholders, which are derived from the dividends paid by the 500 companies in its portfolio. As of today, VOO has a dividend yield of 1.14%. The exact amount varies each quarter depending on the payouts of the underlying companies.
Structural Differences: SPY vs. VOO
A key technical difference is that SPY is structured as a Unit Investment Trust (UIT), while VOO is a more conventional open-end ETF. This means SPY cannot reinvest dividends immediately back into the fund; it holds them as cash until they are distributed. VOO, on the other hand, can reinvest dividends, which can contribute to slightly better performance over time through compounding.
The holdings for VOO are the same as SPY, as both track the S&P 500 index. Therefore, the companies identified with the highest upside potential (Moderna, Chipotle) and greatest downside risk (Tesla, Intel) are the same for both funds.
Comparing Key Metrics of SPY and VOO
When deciding between these two popular ETFs, investors should consider a few key factors that differentiate them despite their similar objectives.
Expense Ratio
The expense ratio is the annual fee charged by the fund to cover its operating costs. VOO has a significantly lower expense ratio (0.03%) compared to SPY (0.09%). While this difference seems small, it can result in substantial savings and higher net returns for investors over several decades.
Trading Volume and Liquidity
SPY is known for its extremely high trading volume, making it more liquid than VOO. This is an advantage for institutional investors and active traders who execute large trades and require minimal bid-ask spreads. For the average retail investor, the liquidity of VOO is more than sufficient for buying and selling shares without issue.
Dividend Handling
As mentioned, SPY's UIT structure prevents it from reinvesting dividends immediately. This can lead to a phenomenon known as "cash drag," where uninvested cash slightly hampers performance. VOO's ability to reinvest dividends allows for more efficient compounding, which is beneficial for long-term investors.
"Both SPY and VOO offer excellent, low-cost exposure to the U.S. stock market. The choice often comes down to the investor's strategy. Active traders might prefer SPY for its liquidity, while long-term investors may favor VOO for its lower expense ratio and more efficient dividend reinvestment."
Conclusion for Investors
Both the SPDR S&P 500 ETF (SPY) and the Vanguard S&P 500 ETF (VOO) are strong investment vehicles for accessing the U.S. stock market. They have demonstrated robust performance in 2024, and analyst outlooks remain positive for both.
The decision between them often depends on an investor's time horizon and trading style. Those focused on minimizing costs and maximizing long-term compound growth may find VOO's lower expense ratio and dividend reinvestment structure more appealing. In contrast, traders who prioritize high liquidity for frequent, large-volume trades may continue to favor SPY.
