S&P 500 on a Winning Streak Since November: VOO vs. SPY ETF

The U.S. stock market made an impressive comeback over the past week, driven by easing trade tensions and solid corporate earnings reports. This was reflected in the S&P 500 and Dow Jones recording the longest winning streak since November and July, respectively (read: Leveraged ETFs Gain Popularity on Market Rebound Hopes).

The Trump administration has softened its stance on tariffs as negotiations are ongoing with various countries. The new administration signed an executive order to ease the burden of tariffs on the auto industry.

Amid the rally, Vanguard S&P 500 ETF VOO pulled in $756.8 million on Monday after a solid inflow of $2.47 billion last week. This propelled its AUM to around $600 billion. On the other hand, SPDR S&P 500 ETF Trust SPY experienced the biggest outflows at $2.4 billion after $9.2 billion outflow last week. This has pushed its AUM down to $571.6 billion. iShares Core S&P 500 ETF IVV, which also tracks the S&P 500, saw an outflow of $221.3 million after a $1.6 billion withdrawal last week (read: Tech Sizzled Last Week: Top-Performing ETFs in the Sector).

VOO vs. SPY

While both look similar in terms of the holdings breakdown, with Apple AAPL, Microsoft MSFT and NVIDIA NVDA taking the top three spots, there are a few key differences between them. We have spotted the differences below: 

Expense Ratio

SPY is the most actively traded ETF with an average daily volume of around 105 billion and a 0.09% expense ratio. On the other hand, VOO is less liquid, trading in an average daily volume of 12.5 billion, which ensures some additional cost in the form of a marginal bid/ask spread. VOO costs just 3 bps in annual fees each, 67% less than the State Street product. 

Growing Assets

Vanguard’s product has gathered $30.8 billion over the past three months, while State Street’s ETF saw a massive outflow of $5.5 billion over the past three months.

Structure

Being the oldest U.S. equity ETF, SPY is structured as a Unit Investment Trust (UIT), with State Street serving as the trustee. It is therefore not allowed to reinvest dividends paid by underlying holdings but must hold them in cash until they are scheduled to be distributed to SPY shareholders. Additionally, SPY does not lend out securities from its portfolio to earn extra money.

Meanwhile, VOO does not have such restrictions and can lend out shares to earn extra. It also reinvests dividends in the index until paid out quarterly, thereby increasing returns from the fund.

Tax Efficiency

VOO is more tax-efficient, thanks to the open-end structure and in-kind creation/redemption mechanisms. On the other hand, SPY is less efficient because it can’t do in-kind redemptions as flexibly due to its UIT structure.

Bottom Line

A low fee, better tax structure and the dividend reinvestment option make VOO attractive to investors, while high trading volume makes SPY enticing, as it is easy to buy and sell large amounts of SPY without incurring extra costs.

For long-term investors, VOO, with a Zacks ETF Rank #1 (Strong Buy), is better due to its lower expense ratio. Meanwhile, SPY, with a Zacks ETF Rank #2 (Buy), may be preferred by traders or institutional investors for its liquidity and tight spreads.

 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research