The SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO) are two of the largest S&P 500 ETFs and are sponsored by State Street and Vanguard respectively. SPY and VOO are a core holding of many investor portfolios and many investors compare SPY vs VOO in order to decide which should be the foundation of their portfolio.
The Short Answer
SPY and VOO identical in nearly every way, except SPY is a higher cost vehicle than VOO. Despite these differences, the risk and return between these two funds is nearly identical and I consider them interchangeable.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Long Answer
Historical Performance: VOO vs SPY
SPY was the first ever ETF and launched 1993, while VOO was launched a year later in September 2010. Since then, performance has been nearly identical with VOO outperforming by .06% annually. The cumulative performance differential over the past decade plus is about 3%.
Differences between VOO vs SPY
These two funds track the same S&P 500 index and so there are almost no differences between the funds.
Geographic Exposure
Both SPY and VOO hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical exposures.
Market Cap Exposure
Again, I won’t dig into market cap exposures since they are identical for VOO and SPY.
Sector Weights
SPY and VOO sector weights are also identical.
Expenses
As the first mover, SPY was able to capture market share early which has led to higher trading volumes and so on. As a result, SPY has been able to charge a premium relative to its competitors (like VOO). SPY’s expense ratio is .0945%, while VOO’s is less than a third of that at .03%. Although SPY is 3x more expensive than VOO, we are only talking about .06%. Perhaps not surprisingly, this is the amount by which VOO has outperformed SPY on an annualized basis. See above.
Transaction Costs
ETFs are free to trade at many brokers and custodians, so both SPY and VOO should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both SPY and VOO is about .01%, so individual investor trades will not generally be large enough to “move” the market.
Tax Efficiency & Capital Gain Distributions
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). VOO has never made a capital gains distribution and SPY has not made a capital gains distribution since 1996 (and I do not expect it to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.
Options Strategies
The one situation where I would recommend SPY rather than VOO is if an investor plans to integrate covered calls or other options strategies since SPY options are WAY more liquid than VOO. Or someone might want to use VOO to avoid triggering wash sales with their SPY options. It is just something to keep in mind.
Final Thoughts: VOO vs SPY
Both SPY and VOO are large, core funds sponsored and managed by two of the largest investment sponsors in the world. Although SPY is more expensive than VOO, performance has been extremely similar.
I view these two funds as essentially interchangeable and would not spend too much energy splitting hairs to decide which one is “better.” In my opinion, both funds are among the best ETFs out there and investors cannot really go wrong with either.
