SPY vs VOO: Comparing Two Popular ETFs

The SPDR S&P 500 ETF Trust (SPY) and Vanguard S&P 500 ETF (VOO) are two of the most well-known and widely held ETFs that follow the S&P 500 Index. They stack up just about the same when it comes to longer term retirement holdings, however one becomes a clear winner when deciding which ETF to trade.

Bottom line up front: Investors will likely favor the VOO for its lower expense ratio and traders will favor the SPY for its liquidity. See also the difference between the SPX and SPY.

Overview of SPY and VOO

SPY:

  • Launched in 1993, SPY is the oldest and one of the largest ETFs in existence.
  • Managed by State Street Global Advisors.
  • Has a large number of assets under management (AUM), making it highly liquid.
  • Tracks the S&P 500 Index, providing exposure to a broad range of large-cap U.S. stocks.

VOO:

  • Introduced in 2010 by Vanguard, a well-known provider of low-cost index funds.
  • Like SPY, VOO also aims to track the S&P 500 Index.
  • Known for its low expense ratio, appealing to cost-conscious investors.
  • Offers similar exposure to large-cap U.S. stocks as SPY.

Key Differences

Although SPY and VOO both seek to mirror the S&P 500 Index, several factors set them apart:

Expense Ratio:

  • SPY has an expense ratio of 0.09%.
  • VOO boasts a lower expense ratio of 0.03%.
  • Over time, the difference in expense ratios can impact overall returns, particularly for long-term investors.

Liquidity:

  • SPY trades more than 50M shares daily on a monthly rolling average
  • VOO trades less than 7M shares daily on a monthly rolling average
  • For most investors, both ETFs offer sufficient liquidity, but active traders might prefer SPY due to its greater trading activity in both the common shares and derivatives (options)

Structure and Tax Efficiency:

  • SPY is structured as a unit investment trust (UIT), which has some restrictions, such as not being able to reinvest dividends immediately.
  • VOO is structured as an open-ended fund, allowing for more flexibility, including immediate reinvestment of dividends.
  • The structural differences can affect tax efficiency, with VOO generally considered to be more tax-efficient due to its ability to “pay” investors with literal shares of individual companies instead of cash to minimize capital gains distributions.

Performance Comparison

Given that both SPY and VOO track the same index, their performance over similar periods is nearly identical. Both ETFs have a Sharpe ratio of 2.69.  However, the slight differences in expense ratios and structure can lead to minor variations in returns only over the long term.

Conclusion

Both SPY and VOO are excellent choices for gaining exposure to the S&P 500 Index. The decision between the two largely depends on your preferences and priorities. SPY’s higher liquidity and trading volume make it an attractive option for active traders, while VOO’s lower expense ratio and tax efficiency are appealing for long-term, cost-conscious investors.