QQQ vs SPY

If you’re researching your options to invest in the US markets, you’ll probably have come across QQQ and SPY. 

These ETFs give you exposure to a wide range of stocks from leading companies such as Apple, Microsoft, Amazon and Alphabet Inc., allowing you to diversify your portfolios with ease. 

But which should you choose and what are the differences between QQQ and SPY? Let’s explore these US index ETFs and help you make a better investment decision.

QQQ vs SPY

	QQQ ETF	SPY ETF
Name	Invesco QQQ Trust	SPDR S&P 500 ETF
Underlying Index	NASDAQ-100 Index	S&P 500 Index
Expense Ratio	0.20%	0.0945%
Inception Date	10 March 1999	22 January 1993
Assets Under Management (AUM)	$167.8B (as of 30 March 2023)	$363.4B (as of 30 March 2023)
Number of Holdings	101	503
Market Cap Weighting	Yes	Yes
Industry Concentration	Technology and Internet-related	Broad-based
Investment Objective	Exposure to large, high-growth companies	Broad exposure to US stock market
Risk Profile	Moderate to High	Moderate to High
Top 10 Holdings	Microsoft (12.52%) Apple (12.31%) Amazon (6.11%) NVIDIA (5.19%) Alphabet Class A (3.76%) Alphabet Class C (3.71%) Tesla (3.67%) Meta Platforms (3.55%) Broadcom (2.07%) PepsiCo (1.97%)	Apple (7.06%) Microsoft (6.17%) Amazon (2.61%) NVIDIA (1.96%) Alphabet Class A (1.81%) Berkshire Hathaway (1.64%) Alphabet Class C (1.59%) Tesla (1.53%) Meta Platforms (1.35%) UnitedHealth Group (1.33%)

What is SPY?

Here are some key facts about the SPDR S&P 500 ETF Trust:

1. Symbol: SPY
2. Inception Date: 22 January 1993
3. Expense Ratio: 0.0945%
4. AUM: $363.4B (as of 30 March 2023)

SPY is a passively managed ETF that tracks the S&P 500 index, you can read about the popular S&P 500 ETFs and their differences here.

Here’s what you need to know about the SPY ETF in a nutshell:

• SPY is an exchange-traded fund, which means it trades like a stock on a stock exchange throughout the trading day.
• The S&P 500 index is a market-capitalization weighted index that includes 500 large-cap US stocks like Apple, Microsoft, Amazon, and Facebook. While it gives you exposure to the best companies listed in the US, this also means that the performance of SPY is heavily influenced by the performance of large-cap companies.
• The S&P 500 index is also often used as a benchmark for other US stock funds and portfolios.

SPY is a popular choice for investors who want exposure to the broad US stock market, as it provides diversified exposure to 500 large-cap companies across a variety of industries.

What is QQQ?

Here are some key facts about the Invesco QQQ Trust:

1. Symbol: QQQ
2. Inception Date: 10 March 1999
3. Expense Ratio: 0.20%
4. AUM: $167.8B (as of 30 March 2023)

Here’s what you need to know about the QQQ ETF in a nutshell:

• QQQ is also a passively managed ETF. It tracks the NASDAQ-100 index instead.
• The NASDAQ-100 index is a market-cap weighted index that includes 100 of the largest non-financial companies listed on the NASDAQ stock exchange. This gives it a heavier weighting towards technology and internet-related companies like Apple, Microsoft, Amazon, Facebook, Google, and Tesla.

QQQ is a popular choice for investors who want exposure to the technology sector and other high-growth companies.

However, it’s important to note that the concentration of its holdings in a tech sector can also make the fund more volatile and subject to greater risks.

QQQ vs SPY – Differences

If you’re considering buying either ETFs, here’re 6 key differences between QQQ and SPY that you must know in order to select the better ETF that suits your investment goals.

1) Performance

As mentioned above, the different underlying index could result in varying outcomes for investors of the QQQ and SPY.

Here’s how these two ETFs performed over the past 5 years:

As the saying goes; “historical results does not guarantee future performance”. However, by comparing the historical performance of QQQ vs SPY, you should have a clearer idea of what to expect as an investor.

Here’re their historical returns across different time spans:

	1-Year Return	3-Year Return	5-Year Return	10-Year Return
QQQ	-14.8%	13.2%	12.7%	17%
SPY	-7.8%	12%	9.7%	12.1%

Based on the current data, you should be able to detect patterns of higher volatility in QQQ over the shorter term and higher returns over the long term.

2) Expense Ratio

	QQQ	SPY
Expense Ratio	0.2%	0.0945%

QQQ has an annual expense ratio of 0.2% while SPY charges just 0.0945%. This means QQQ’s fees are twice as expensive as SPY’s.

You should compare this against their historical returns and decide if you are comfortable with the differences in fees. 

Since they are both index ETFs, why do their performance and expense ratio differ so much? Here’s the key reason:

3) Strategy

While both QQQ and SPY are passively managed funds, they track different underlying indices which could impact your investment outcome.

	QQQ	SPY
Underlying Index	NASDAQ-100 Index	S&P 500 Index

The QQQ ETF tracks the Nasdaq 100 index which includes the 100 largest and most actively traded non-finance stocks listed on Nasdaq.

The SPY tracks the broader S&P 500 index that includes the top 500 stocks listed in the US market, by market capitalization. 

The former gives you access to popular high growth companies while the latter offers a more diversified exposure to the US markets.

Let’s take a look at their sector diversification for a clearer idea of what you’re really investing into via the QQQ and SPY:

4) Sector Diversification

As mentioned in the summary table above, QQQ provides exposure to large, high-growth companies in the technology sector. Here’s how QQQ differs from SPY in terms of its sector diversification:

Sector	QQQ	SPY
Information Technology	49.23%	25.76%
Communication Services	16.42%	8.10%
Consumer Discretionary	14.62%	9.94%
Health Care	6.39%	14.42%
Consumer Staples	6.13%	7.36%
Industrials	4.42%	8.70%
Financials	1.21%	13.05%
Utilities	1.17%	2.89%
Energy	0.41%	4.65%
Materials	–	2.64%
Real Estate	–	2.50%
Unclassified	0.21%	–

5) Holdings

While QQQ and SPY track different underlying indices, there are overlaps in their Top 10 holdings (weightage is accurate at the point of writing):

	QQQ	SPY
Apple	12.31%	7.06%
Microsoft	12.52%	6.17%
Amazon	6.11%	2.61%
NVIDIA	5.19%	1.96%
Alphabet Class A	3.76%	1.81%
Alphabet Class C	3.71%	1.59%
Tesla	3.67%	1.53%
Meta Platforms	3.55%	1.35%
UnitedHealth Group	not in top 10	1.33%
Berkshire Hathaway	not in top 10	1.64%
Broadcom	2.07%	not in top 10
PepsiCo	1.97%	not in top 10

The longer tail of the SPY includes companies that could either hold it back from delivering higher returns when the markets are good, but cushion its volatility when the markets are bad. 

You’ll need to decide if you are comfortable trading volatility for higher potential returns.

That said, we’re really just picking pennies here because a 0.2% fee is still relatively cheap.

6) Fund Manager

QQQ is managed by Invesco while SPY is offered by State Street Global Advisors.

Both fund managers have been in the scene for decades with Invesco being founded in 1935 while SSGA was formed in 1978.

QQQ vs SPY – Similarities

Both are passively managed

Both SPY and QQQ are passively managed ETFs which means they merely track their underlying indices instead of trying to beat the market returns. 

The advantage of passively managed ETFs is their low fees as managers do not need to actively pick stocks to deliver higher returns. It also keeps your risks low, in line with the indices.

Liquidity

You will want to invest in ETFs which good liquidity to ensure that you can buy and sell your holdings quickly, with lower spreads. 

	QQQ	SPY
Assets Under Management (AUM)	$167.8B	$363.4B
Average daily volume	$16.75B	$33.77B
Average Spread	0%	0%

Although their magnitudes vary, both SPY and QQQ are highly liquid ETFs.

Is QQQ better than SPY?

If you’re looking purely at performance, QQQ is better than SPY based on historical performance (past 5 years).

However….

choosing between QQQ and SPY boils down to your investment goals, risk tolerance and portfolio strategy. 

If you’re looking for an ETF that offers exposure to high growth companies, with a focus on technology and internet-related stocks, then the QQQ that tracks the NASDAQ-100 may be a better option for you. 

On the other hand, if you’re looking for diversified, broad-based exposure across the US stock market, you may prefer the SPY over the QQQ since the former tracks the broader S&P 500 index. 

Historically, the QQQ has outperformed the SPY in terms of returns. However, you should keep the downsides in mind. Compared to the SPY, QQQ experiences higher volatility due to its concentration in high-growth stocks.

We have also seen the impact that raising interest rates has on this industry recently, hence you should be mentally prepared for more periods of market drawdowns, if you were to invest in QQQ.

Of course, if you wish to push the envelop and grow your money faster, you would do better by picking stocks that can outperform the market. Alvin shares how we pick such stocks to grow the Dr Wealth portfolio at his live webinar, join him at the next session.