SPY vs QQQ: Throwing in index funds

If you’re considering SPY vs QQQ, you’ve probably decided to put some of your money in an index fund. For most investors, this is a sensible decision. Even with a small investment, you get a highly diversified portfolio and you don’t have to worry about judging and picking stocks.

But which of these funds is right for you? Let’s take a closer look, starting from the basics.

SPY vs QQQ: By the numbers

SPY QQQ
Full name SPDR S&P 500 ETF Trust Invesco QQQ Trust
Index Tracked S&P 500 NASDAQ-100
Assets under management* $400.4 billion 154 billion dollars
Number of holdings 505 102
Cost ratio 0.09% 0.20%
Dividend yield* 1.51% 0.61%
Publisher State Street Global Advisors Invesco
* Ace of September 2023

Five-year performance

SPY vs.  QQQ Five Year Performance Chart

SPY vs QQQ: What’s the difference?

The most notable difference between SPY and QQQ is that they track different indices:

  • SPY is watching S&P 500. The S&P 500 is an index of the 503 largest companies in the US. The companies represented are listed on the New York Stock Exchange (NYSE), NASDAQ and Chicago Board Options Exchange (CBOE) BZK Exchange.
  • QQQ tracks the NASDAQ-100. The NASDAQ-100 tracks the 101 largest non-financial stocks traded on the NASDAQ exchange. NASDAQ is considered a technically demanding it also includes non-financial companies.

Both these indices and both ETFs they are weighted by market capitalization, meaning that larger companies are given more weight.

SPY vs. QQQ: Sector exposure

SPY and QQQ divide their sector descriptions in slightly different terms.

SPY Sector Split

Sector Mass
Information Technology 27.16%
Health care 13.41%
Finance 12.99%
Consumer sector 10.70%
Communication services 8.80%
Industrials 8.28%
Consumer sector 6.68%
Energy 4.59%
Utilities 2.57%
Materials 2.42%
Property 2.40%

QQQ Sectoral breakdown

Sector Mass
Technique 57.05%
Consumer sector 18.67%
Health care 7.07%
Telecommunication 5.16%
Industrials 4.99%
Consumer goods 4.46%
Utilities 1.27%
Energy 0.71%
Property 0.3%
Basic materials 0.27%

One thing that immediately stands out in these breakdowns is that QQQ is heavily concentrated in the technology and consumer sectors. Both of these sectors tend to outperform during bull markets, but can experience significant declines during them bear markets.

Tracking different indices is a major difference in the SPY vs QQQ equation.

  • SPY it tracks a larger number of companies from a wider range of business sectors. This means that it is more diversified, has higher dividend (tech companies often don’t pay dividends) and can be considered a more defensive position, less likely to lose in down markets.
  • QQQ follows a smaller number of companies with a greater concentration in tech. This makes the ETF more likely to outperform in expansionary conditions, when technology tends to outperform, and also more of a risk in bear markets when top technology companies have to continue to decline.

None of these options are fundamentally better or worse. They provide exposure to slightly different market sectors, resulting in different performance characteristics.

SPY vs QQQ: Similarities

SPY and QQQ have a lot in common. SPY is the largest single ETF traded in the US markets and QQQ is the 5th largest. According to the average daily volume, the first and second most traded funds are in the country.

Both funds are managed by large investment firms with extensive track records: SPY by State Street Global Advisors and QQQ by Invesco. If you’re looking for large, highly liquid funds with trusted management, both of these ETFs will pass your screen.

There are also less obvious similarities that stem from three basic facts:

  1. Many companies traded on the NASDAQ are part of the S&P 500 index.
  2. The big tech companies from NASDAQ are among the largest companies in the US.
  3. Both the S&P 500 and the NASDAQ-100—and the funds that track them—are weighted by market capitalization.

What does this mean in practice? Let’s take a look at the top ten SPY and QQQ holdings.

Top 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 Health Group Inc (1.3%) Costco Wholesale Group (2.15%)

These are very similar lists, with all but two companies appearing on the pages in very similar order. QQQ has higher concentrations in these companies, as expected from a fund with fewer holdings overall.

If the funds are so similar, what makes these funds different? The answer is simply that after the top ten the shares diverge substantially. Let’s look at the next ten holdings for each fund.

SPY QQQ
ExxonMobil Corp (1.27%) PepsiCo Inc (2.09%)
Eli Lilly and Company (1.21%) Adobe Inc (2.04%
JP Morgan Chase & Co (1.17%) Cisco Systems Inc (1.89%)
Johnson & Johnson (1.07%) Comcast Corp Class A (1.61%)
Visa Inc (1.04%) Netflix Inc (1.46%)
The Procter & Gamble Company (0.99%) T-Mobile US Inc (1.42%)
Broadcom Inc (0.95%) Advanced Micro Devices Inc (1.35%)
Mastercard Incorporated (0.92%) Texas Instruments Ince (1.26%)
The Home Depot Inc (0.85%) Amgen Inc (1.24%)
Chevron Corporation (0.82%) Intel Corp (1.24%)

This is where we start to see real divergence in the holdings of the two funds. We also see more diversification of SPY: the QQQ list is still dominated by technology, while SPY has a strong presence in sectors such as energy, financials and pharmaceuticals.

which one is best for you?

Both SPY and QQQ are solid choices for an investor looking for a quality index fund. Both are among the largest and most prominent ETFs in the country, and both are highly liquid.

Your choice will be based on what you are looking for in an investment.

  • SPY is a relatively conservative, highly diversified ETF with very low management costs, a higher dividend yield and less potential for dramatic losses during market downturns.
  • QQQ is a more aggressive, less diversified fund focused on large technology companies. This gives it greater potential for gains in bull market periods, but also opens up the possibility of significant losses in bear markets.

How you see the markets makes the difference: if you think the markets are set for an expansionary phase, QQQ would be a better choice. If you see the potential for a market decline and want to minimize costs and risks, SPY may be your ETF of choice.

If you weigh SPY vs. QQQ and having trouble deciding, consider allocating a portion your portfolio to each fund. Keeping a few ETFs in your portfolio can provide the best of both worlds!

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