SPDR S&P 500 ETF Trust SPY offers a well-diversified, market-cap-weighted portfolio of 500 of the largest US stocks. It accurately represents the US large-cap opportunity set while charging a rock-bottom fee—a recipe for success over the long run.
The exchange-traded fund tracks the flagship S&P 500, which selects 500 of the largest US stocks, covering roughly 80% of US market capitalization. An index committee has discretion over selecting companies that meet certain liquidity and profitability standards. This committee-based approach may lack clarity, but it adds flexibility to limit unnecessary changes during reconstitution. It should incur modestly lower transaction costs compared with more rigid rules-based indexes.
The end portfolio is well-diversified and accurately resembles the US large-cap opportunity set. This allows the ETF to capitalize on its low fee, ultimately delivering sound long-term performance on both an absolute and risk-adjusted basis.
The bedrock of this ETF is its market-cap weighting, which harnesses the market’s collective wisdom of each stock’s relative value with the added benefits of low turnover and trading costs. It’s a sensible approach because the market tends to do a good job pricing large-cap stocks. The companies in this portfolio attract liquidity and widespread investor attention, such that prices reflect new information quickly.
However, its market-cap weighting may expose the ETF to stock- or sector-level concentration risk when a few richly valued companies or sectors power most of the market gains. As of December 2023, the portfolio’s top 10 holdings made up a larger portion of the index (31%) than they had in several decades. Its 30% allocation to technology stocks was the highest since the dot-com bubble. But this is not a fault in design: The S&P 500 simply reflects the market’s composition. In the long run, its broad diversification, low turnover, and low fee outweigh these risks.
Performance Highlights
This ETF accurately represents the US large-cap opportunity set, allowing it to leverage its cost advantage that drives sound category-relative performance. These qualities position the ETF for outperformance against US large-cap peers over the long run.
The ETF’s performance closely follows the ups and downs of the US stock market since it is always invested. All else equal, this ETF should outperform its peers that hold cash during market rallies. Likewise, the ETF should lag similar peers when the market falls because it lacks a cash buffer.
The ETF misses out when small-cap stocks outperform large-cap stocks, as they did in the fourth quarter of 2020 because it focuses on the largest and the most established companies. The S&P 500 lagged the Morningstar US Market Index (which includes large-, mid-, and small-cap stocks) by 2 percentage points over the fourth quarter of 2020. Likewise, the ETF can become top-heavy during periods of consolidation among top US companies. This exposes the portfolio to US market risks should another dot-com-type bubble burst; the S&P 500 fell over 40% in the early 2000s.
The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.
The SPDR S&P 500 ETF Trust reigns supreme as the most popular S&P 500 ETF. The first ETF launched in the U.S. has maintained this status thanks to its strong institutional backing and first-mover advantage. SPY doesn't have the lowest expense ratio on our list. But it makes up for this in liquidity.
Vanguard S&P offers a lower expense ratio (0.035%) than SPY (0.095%), which means lower costs for investors and potentially higher net returns over the long term. VOO might be the more economical choice for cost-conscious investors, especially those investing large sums or planning for long-term goals like retirement.
To invest in S&P 500 ETFs, investors can gain exposure through discount brokers with commission-free trading. S&P 500 index funds trade through brokers and discount brokers and may be accessed directly from the fund companies.
Over the long run, they do compound—those fee differences—and investors have been putting a lot more money into VOO versus SPY. That is the reason why we view VOO slightly better than SPY. And that is just the basic approach, which is the lower the investor can pay, the better the investment is.
VTI is a total U.S. market fund and holds more than 3,500 stocks. VTI is better diversified and benefits from small and mid-cap stocks that grow into large caps. VOO is less diversified, tracking the performance of the S&P 500 Index. VOO excludes small and mid-cap stocks.
VOO has over $1 trillion in assets under management and provides investors with exposure to all the largest companies in the United States. You're getting a basket of stocks that has a 29.81% weighting toward technology, and the Magnificent 7 makes up roughly 25% of the index.
In the past year, QQQ returned a total of 33.88%, which is significantly higher than VOO's 27.29% return. Over the past 10 years, QQQ has had annualized average returns of 18.86% , compared to 12.84% for VOO. These numbers are adjusted for stock splits and include dividends.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of the best ways to invest in the S&P 500, which has been a pretty smart strategy over the long term. Since 1965, the S&P 500 has produced a total return of 10.2% annualized. The Vanguard ETF has an expense ratio of just 0.03%, so you get to keep most of your gains.
SPDR S&P 500 ETF Trust SPY offers a well-diversified, market-cap-weighted portfolio of 500 of the largest US stocks. It accurately represents the US large-cap opportunity set while charging a rock-bottom fee—a recipe for success over the long run.
How Does an S&P 500 ETF Differ from an S&P 500 Index Fund? Both an index ETF and an index mutual fund passively track the S&P 500 index in order to duplicate its return. ETFs trade like stocks on exchanges, while mutual funds can only be traded at the end of each trading day.
Key Data Points. When it comes to safe investments, the iShares 0-3 Month Treasury Bond ETF is the next safest thing to simply holding cash in your portfolio. The index fund invests in a portfolio of Treasury securities with maturity dates of three months or less.
Fidelity® 500 Index Fund is a diversified domestic large-cap equity strategy that seeks to closely track the returns and characteristics of the S&P 500® index.
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