SPY and QQQ are the two most discussed ETFs in the world.
Every single trader out there has bought or sold them at some point.
But what are the differences between SPY and QQQ?
And are they more similar or different?
SPY vs. QQQ: In Short
SPY and QQQ are very similar, but have some important differences. QQQ is more volatile because it is more concentrated in technology and high-growth stocks. It also has no exposure to energy or financials. Many active day traders like QQQ more than SPY because of its increased volatility. So as you'd expect, SPY outperforms when financial and energy stocks are in favor. SPY also has a lower expense ratio and higher dividend yield, which help it appeal to swing traders and long-term investors.
The Basics of SPY and QQQ
SPY is the symbol of the SPDR S&P 500 ETF Trust.
It is managed by State Street Global Advisors, one of the largest asset management companies in the United States.
SPY tracks the performance of the benchmark S&P 500 index.
QQQ is the symbol for the Invesco QQQ ETF, which is managed by Invesco.
QQQ is based on the Nasdaq 100 index, not the Nasdaq Composite as commonly thought.
Traders never use the full names of these ETFS.
You often hear people SPY called simply SPY, SPYs (pronounced like spies), or “spiders” which is a reference to the SPDR brand name.
And when you hear a trader say “the Qs” they are talking about QQQ.
What SPY and QQQ Have in Common
SPY and QQQ are similar in many ways.
They give you instant exposure to a variety of companies, though in different ways, as you will see below.
Both ETFs are extremely liquid.
At the time of writing, SPY traded 81 million shares per day, while QQQ’s average volume was 58 million.
Plus, both have active options markets.
So it’s easy to get in and out of positions.
SPY and QQQ are also inexpensive. SPY has an annual expense ratio of 0.09% while QQQ’s is 0.2%.
Short-term traders love the liquidity of these instruments. And long-term investors like the low expense ratios.
SPY and QQQ are also both based on market cap-weighted indices, meaning that the stocks with the biggest market capitalizations have the biggest weightings in the funds.
SPY vs. QQQ: A Holdings Comparison
This is where things get interesting.
SPY and QQQ have many holdings in common. In fact, the top 4 holdings in each are identical. And 6 of the top 10 are the same.
Here's each fund's top 10 holdings by weight.
Holding | SPY | QQQ |
|---|---|---|
#1 | Apple (AAPL): 7.0% of the fund | Apple (AAPL): 14% of the fund |
#2 | Microsoft (MSFT): 5.3% | Microsoft (MSFT): 9.9% |
#3 | Amazon (AMZN): 2.6% | Amazon (AMZN): 5.7% |
#4 | Tesla (TSLA): 1.9% | Tesla (TSLA): 4.0% |
#5 | Alphabet Class A (GOOGL): 1.7% | Alphabet Class C (GOOG): 3.2% |
#6 | Berkshire Hathaway Class B (BRK.B) | Alphabet Class A (GOOGL): 3.1% |
#7 | UnitedHealthy (UNH) | Nvidia (NVDA): 2.8% |
#8 | Alphabet Class C (GOOG): 1.5% | Pepsico (PEP): 2.5% |
#9 | Exxon Mobil (XOM) | Costco (COST): 2.1% |
#10 | Johnson & Johnson (JNJ): 1.4% | T-Mobile (TMUS): 1.9% |
Data Source: Morningstar
And if you notice, the QQQ is much more top heavy. This is because it is comprised of 103 stocks vs. 503 for the SPY.
Note: the Nasdaq 100 has 103 stocks in it and the S&P 500 has 503 stocks. This is because some companies like Alphabet (GOOGL) have more than one share class.
The top 10 stocks in the QQQ account for 49.2% of the fund, so just 10 out of 103 holdings account for almost half the fund’s performance. Apple (AAPL) is number-one at 14.0%.
SPY’s 10 biggest holdings are 26.0% of the fund, with Apple weighing in at 7.0%.
Now let’s talk about sectors.
People often equate QQQ with technology because 50% of the fund’s assets are in tech stocks vs. 26.2% for the SPY.
And interestingly, QQQ has zero exposure to energy, financials, materials, and real estate.
Sector | SPY | QQQ |
|---|---|---|
Consumer Discretionary | 10.8% | 15.4% |
Consumer Staples | 6.9% | 7.1% |
Energy | 5.4% | 0% |
Financial | 11.6% | 0% |
Healthcare | 15.4% | 7.6% |
Industrials | 8.3% | 3.8% |
Information Technology | 26.2% | 50.0% |
Materials | 2.6% | 0% |
Real Estate | 2.6% | 0% |
Communication Services | 7.3% | 14.7% |
Communication Services | 3.0% | 1.5% |
SPY vs. QQQ: Volatility
As you’d expect, the QQQ is more volatile than SPY.
Beta is a common measure of volatility for stocks and ETFs.
The SPY has a Beta of 1.0, while QQQ’s is 1.10.
So for every 1% SPY moves up or down, the QQQ is expected to move 1.1%.
For that reason, many active day traders gravitate towards QQQ. They can get more movement, which is critical for day traders..
Of course, on any given day, the performance can vary by a wide margin, particularly if there is big movement in tech stocks like Apple, Microsoft (MSFT), and Amazon (AMZN).
During earnings season, you can expect dramatic differences between SPY and QQQ when a big name like Apple reports.
SPY vs. QQQ: Performance
SPY and QQQ’s performance is almost always in the same neighborhood because each has significant exposure to major sectors of the economy.
However, performance during a given time period varies based on the risk appetite of the public.
When markets are in a state of euphoria, expect QQQ to outperform SPY.
In 2020, QQQ rose 48.6% because tech stocks like Apple and Tesla rallied so hard after the pandemic bottom.
And when the market is bearish, QQQ will underperform because tech stocks get devalued quickly.
When the tech bubble burst in 2000, QQQ fell -36.9% vs. a -9.2% drop for SPY.
Sectors also play a role at times.
In 2021 and 2022, SPY outperformed because of strength in energy stocks, of which there are none in the QQQ.
Yes, 2022 is a down year as of this writing, but SPY is down less because of energy exposure.
SPY vs. QQQ: Dividend Yield
SPY’s dividend yield is 1.61%, more than double the QQQ’s 0.68%.
That’s no surprise given that QQQ has no exposure to the highest-yielding sectors like financials, energy, and utilities.
SPY vs. QQQ: Which Is Better?
So what’s better?
SPY or QQQ?
The answer is... it depends on what you need and want.
If you want more volatility in your portfolio and can stomach of risky technology stocks, QQQ fits the bill. In fact, many traders prefer QQQ because of the volatility.
If you want stability, SPY makes more sense.
What do you think? Do you trade SPY, QQQ, or both? Let us know in the comments below.
