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Saturday, March 2, 2024

SPY vs QQQ: Index Fund Faceoff


Should you’re weighing SPY vs QQQ, you’ve in all probability determined to place a few of your cash into an index fund. For many buyers, that’s a sound resolution. 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 more in-depth look, beginning with the fundamentals.

SPY vs QQQ: By the Numbers

SPY QQQ
Full Identify SPDR S&P 500 ETF Belief Invesco QQQ Belief
Index Tracked S&P 500 NASDAQ-100
Property Below 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-Yr Efficiency

SPY vs. QQQ Five-Year performance chartSPY vs. QQQ Five-Year performance chart

SPY vs QQQ: What’s the Distinction?

Essentially the most distinguished 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 most important corporations within the US. The businesses represented are listed on the New York Inventory Alternate (NYSE), the NASDAQ, and the Chicago Board Choices Alternate (CBOE) BZK Alternate.
  • QQQ tracks the NASDAQ-100. The NASDAQ-100 tracks 101 of the most important non-financial shares buying and selling on the NASDAQ change. The NASDAQ is taken into account a tech-heavy change but in addition contains non-financial corporations.

Each of those indices and each ETFs are market cap weighted, which signifies that they provide bigger corporations 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%
Shopper Discretionary 10.70%
Communication Companies 8.80%
Industrials 8.28%
Shopper Discretionary 6.68%
Vitality 4.59%
Utilities 2.57%
Supplies 2.42%
Actual Property 2.40%

QQQ Sector Breakdown

Sector Weight
Know-how 57.05%
Shopper Discretionary 18.67%
Well being Care 7.07%
Telecommunications 5.16%
Industrials 4.99%
Shopper Staples 4.46%
Utilities 1.27%
Vitality 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 expertise and shopper discretionary sectors. Each of those sectors are inclined to outperform throughout bull markets however might 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 corporations from a wider vary of company sectors. Meaning it’s extra diversified, has the next dividend (tech corporations typically don’t pay dividends), and may very well be thought of a extra defensive place, much less prone to lose in down markets.
  • QQQ tracks a smaller variety of corporations with a higher focus in tech. That makes the ETF extra prone to outperform in expansionary circumstances, when tech tends to outperform, and in addition makes it a higher threat in bear markets when high-flying tech corporations have additional to fall.

Neither of those choices is essentially 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 quite a bit in frequent. SPY is the most important 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 day by 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 searching for massive, extremely liquid funds with credible administration, each of those ETFs will cross your display.

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

  1. Many corporations 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 corporations 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 observe? Let’s take a look at the ten largest holdings of SPY and QQQ.

Prime Holdings: SPY vs QQQ

SPY 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 corporations showing on each side in very comparable order. QQQ has greater concentrations in these corporations, as anticipated from a fund with fewer holdings general.

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

SPY QQQ
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-Cellular US Inc (1.42%)
Broadcom Inc (0.95%) Superior Micro Units Inc (1.35%)
Mastercard Included (0.92%) Texas Devices Ince (1.26%)
The Dwelling 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 higher diversification of SPY: the QQQ checklist continues to be dominated by tech, whereas SPY has a robust presence in industries like power, financials, and prescription drugs.

Which Is Finest for You?

Each SPY and QQQ are strong selections for an investor who’s searching for a high quality index fund. Each are among the many largest and most distinguished ETFs within the nation, and each are extremely liquid.

Your selection shall be primarily based on what you’re searching for 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 corporations. This provides it higher potential for positive aspects in bull market durations but in addition opens up the potential for important losses in a bear market.

The way you see the markets makes a distinction: in the event you assume markets are set for an expansionary part, QQQ could be a more sensible choice. Should you see potential for a market turndown and also you wish to reduce prices and dangers, SPY may be your ETF of selection.

In case you are weighing SPY vs QQQ and also you’re having bother making up your thoughts, think about allocating a portion of your portfolio to every fund. Maintaining a number of ETFs in your portfolio can present one of the best of each worlds!

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