QQQ is an ETF by Invesco tracking the NASDAQ 100 Index. NASDAQ 100 index claims that it tracks companies leading in technological innovation.
SPY was launched in 1993 and tracks the S&P 500 Index. This index is a listing of the largest firms of the US stock market with large market caps. SPY is one of the giant ETFs run by SPDR (Standard & Poor’s Depository Receipt) by State Street Global Advisors.
Key Takeaways
- QQQ by Invesco links to the NASDAQ 100 Index, while SPDR’s SPY tracks the S&P 500 Index.
- QQQ holds 100 stocks with a concentration of over 50% in tech. SPY is 500 stocks spread across all sectors.
- Technically speaking, SPY offers exposure to QQQ within its holdings.
- QQQ has outperformed SPY in recent years due to tech giants like Amazon, Google, Microsoft and Facebook, which improve its performance indicators. This performance doesn’t imply future returns, however.
- QQQ is a higher-risk holding that may be added to a portfolio as a supplemental holding.
- As an individual, low-risk investor SPY is a preferred core holding to have in a balanced portfolio
Contents show
QQQ vs. SPY: Summary
QQQ is an ETF fund run by Invesco that tracks the NASDAQ 100 Index. The NASDAQ 100 has the top 100 companies traded on the NASDAQ exchange, except for Financials. The index claims that it tracks companies leading in technological innovation.
QQQ was launched in 1999 and has been a top-ranked EFT most of the time since then. It has over $ 200 Bn assets under management and annual returns of 30%. Management costs are 0.20%. The significant holdings are tech (over 60%), due to which the fund is seen as a primarily tech-based fund now.
SPY was launched in 1993 and is one of the giant ETFs available for investment. The fund links with the S&P 500 Index. The index lists the largest firms of the US stock market with large market caps. SPY is an SPDR (Standard & Poor’s Depository Receipt), the oldest ETFs run by State Street Global Advisors. It has over $ 400 Bn assets under management and annual returns of 30%. Management costs are 0.09%.
QQQ vs. SPY: Composition
Fund Compositions
QQQ is a full basket of about 100 companies in a handful of sectors. Over 60% of its weight is in tech stocks (combining technology and communication services). Alphabet (Google), Apple, Amazon, and Facebook are the top holdings. QQQ is significantly tech-oriented, with PayPal, NVIDIA and Adobe also part of its top ten holdings.
Compared to QQQ, SPY also has tech stocks in its top 10 holdings, but their weight is only 35% (technology and communication services combined). The top ten SPY holdings make up only 27% of the total fund holdings of around 500. Technically speaking, SPY holds most of QQQ’s holdings in its portfolio.
Indexes Tracked
Like I mentioned earlier, the QQQ tracks the Nasdaq-100 Index. The NASDAQ 100 holds 102 equities issued by companies that fall in the large market cap category. The index is based on a weighted average based on market capitalization.
Similarly, the S&P 500 tracks 500 big cap companies on the US stock exchanges. The S&P 500 is a highly followed index, even though it doesn’t hold all the top 500 companies in market cap. There are some technical requirements to be included in the index. The index only considers free-floating shares and weighs them according to their market capitalization.
Market Caps
The QQQ fund tracks the performance of US equities that fall in the large market capitalization and growth category. As of November 2021, QQQ’s breakup was 91% large growth and 6% mid-cap growth stocks. About 4% was in emerging market
The SPY tracks the performance of US equities that fare categorized as large market cap companies with a blend of growth and value listing. As of November 2021, the breakup of SPY was 46 % in large value stocks and 54% in large growth
Diversification and Holdings
SPY holds approximately 508 company shares, out of which 24% are technology, 14% are financial services, 13% are healthcare, and 12% are consumer cyclical. The distribution is diversified, except for the tech-heavy top holdings.
In comparison, QQQ seems chunky in its holdings spread. Out of approximately 100 holdings, 46% are in Technology alone, 20% in communication services, and 16% in consumer cyclical (which includes Amazon)
QQQ vs. SPY: Historical Performance
The SPY is hampered by the fact that the index it tracks is a high-performing one. It is usually difficult to match its performance. In the table below, the compounded growth rate for SPY is 8%, while it is 10% for QQQ.
The best and worst performances are also higher (and lower) for QQQ, making it more volatile for risk-averse investors. Best year rates for QQ were 74%, compared to 32% for SPY, while the worst year was a negative 42% for QQQ compared to negative 37 % for SPY. This again drives home the point that while being tech-heavy has its risks, it can yield high results when a tech stock takes off.
The chart also highlights the advantages of the QQQ for 2020-2021. While the SPY is lagging for apparent reasons, QQQ is moving high on the mini tech boom we experienced in this period.
Market correlation is higher for the SPY, highlighting how market-linked the ETF is.
QQQ vs. SPY: Fees & Tax Efficiency
Comparing the expense ratios of the ETFs, QQQ is slightly more expensive with an expense ratio of 0.20% compared to SPY’s 0.09%. Assets under management are almost double for SPY with over $ 400 Billion, while QQQ has $200 Billion.
SPY has a higher yield for the trailing twelve months (TTM) at 1.24%, while QQQ has 0.45%. The P/E ratio (TTM) is higher for QQQ at 32, while 24 for the SPY.
SPY is slightly more effective in tax efficiency without paying any capital gains distribution in over a decade. QQQ does have a tax liability, but it is negligible enough to be ignored.
QQQ vs. SPY: ESG Ratings & Impact
QQQ falls in the 9th percentile in its US equity peer group and the 32nd percentile globally out of approximately 34,000 funds. 32% of its holdings have an MSCI ESG Rating of AAA or AA, the top ESG rating, while 5% get an MSCI ESG Rating of B or CCC, which is the lowest ESG rating.
The stocks the fund holds have alowcarbon rating, calculated from the weighted average of carbon discharge, calculated for USD million sales.
Approximately 12 % of the fund’s total revenue from its holdings is from alternative energy, and none of the total revenue is fossil fuel-based.
SPY is in the 48th percentile in the US equity peer category and the 51st percentile in the world ranking of about 34,000 ETFs.
27% of its holdings have an MSCI ESG Rating of AAA or AA, classed as the top ESG rating and 4% got an MSCI ESG Rating of B or CCC, which is the lowest ESG rating.
The fund’s stocks havemodestcarbon intensity, calculated from the weighted average of carbon discharge, calculated for USD million sales. Approximately 7 % of the total revenue generated by its holdings is from alternative energy sources, while none of the total revenue is from fossil fuel-based sources.
Final Verdict
It seems obvious by now that QQQ has been doing better than SPY in most key parameters historically. But will that make it a superior option to invest in? Regardless of the analysis and the data, it comes down to an individual investor’s decision. If you have the risk appetite and willingness to take exposure to a specific industry, then QQQ is a definite choice for you.
However, if you want to keep it safe, spread out your exposure, and limit downside risk, the SPY would suit you better. Like everyone states, historical performance does not guarantee future performance.
The lack of diversification in QQQ can make it vulnerable to industry-specific problems and price shocks. What if technology stocks suffer a setback? Or don’t they perform as well as they did in the past? Or what if it just tables and stays stagnant for the next 2-3 years? QQQ personifies the high-risk, high return statement for now. Its riskier but is also giving better returns. Compared to it, SPY reflects its linked index to perfection, making it a poster child for low risk and stable returns.
The decision eventually comes down to you and where you are at present in your investment journey.
Are you looking to grow your portfolio for the next 3-4 years by taking some risks? Or do you want to make stable and safe investment choices with little to worry about? You can decide to pick a mix of both for balancing your portfolio returns.
I prefer SPY due to the elements of value stocks that it offers in its makeup. Growth is good to have, but value stocks add in better returns to a portfolio in recent times. The presence of value stocks in SPY gives it an edge over QQQ, notably post-pandemic. In the recovery phase, mid and small-cap stocks will perform better than large stocks, and SPY should outperform QQQ in technical fundamentals.
