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ETF Battles: QQQ Vs. SPY, Who Wins?

|About: Invesco QQQ ETF (QQQ), SPY
Summary

This is an excerpt from the video titled, ETF Battles: QQQ vs. SPY with Ron DeLegge at ETFguide.

The two largest ETFs in the world by trading volume and assets are pitted against each other.

Both funds are analyzed and compared in key categories like cost, dividends, diversification, and performance.

ETF Battles: QQQ vs. SPY

This is an excerpt from the video titled, ETF Battles: QQQ vs. SPY with Ron DeLegge at ETFguide.Welcome to battle of the ETFs, I'm Ron DeLegge with ETFguide. The Invesco Nasdaq-100 Trust (QQQ) and the SPDR S&P 500 ETF (SPY) are heavyweights beyond the ETF marketplace but around the globe. No other securities come close to matching either in terms of trading volume and assets. During normal markets, daily trading volume for QQQ averages around 75 million shares while SPY averages 173 million shares. During the latest market correction, daily volume skyrocketed to record levels with QQQ topping 149,247,100 shares traded in a single session while SPY booked 385,764,000 shares. (Both trading volume peaks occurred on Feb. 28, 2020) 

For perspective on how big QQQ and SPY's trading volume is, other volume leaders of widely held stocks like Apple and Microsoft typically average 50 to 100 million shares traded on a daily basis. That's still no match for these two ETF heavyweights! 

CostThe first category for comparing QQQ vs. SPY is cost. Who wins? SPY charges annual expenses of just 0.09% compared to 0.20% for QQQ. Put another way, QQQ is more than double the cost of SPY! While SPY isn't necessarily the cheapest S&P 500 ETF, compared to QQQ it's a bargain. Bid ask spreads are another element of an ETF costs. And ETFs with tight bid ask spreads reduce the frictional trading costs associated with buying and selling funds. In this regard, QQQ and SPY are evenly matched with both funds having very narrow bid ask spreads that hover around 0.01%.

When it comes to low cost, SPY easily beats QQQ. DividendsNext up is to compare QQQ vs. SPY by dividend yield. Who wins this category? First, both funds distribute dividends from their equity holdings every quarter. SPY has a 12-month trailing yield of 1.90% while QQQ is at 0.77%. Clearly, SPY wins but there's more behind the reason why. SPY, unlike QQQ, contains significant exposure to key dividend paying industry sectors like financials, real estate, and utilities. On the other hand, QQQ is overweight technology (63.91% of its portfolio is committed to this sector at the time of publication) and the tech sector is a historically low dividend yielding industry group. SPY beats QQQ by having a higher dividend. Also the fact that SPY obtains its dividends across a far more diversified base of 11 industry groups compared to the technology heavy QQQ makes it a winner. Diversification Who wins the battle between QQQ and SPY on diversification? Almost 65% of QQQ's sector exposure is to technology companies, which isn't very diversified at all and if you blindfolded me and asked me to guess what type of ETF that QQQ is, I would immediately describe it as an industry sector fund. In contrast, SPY beats QQQ on diversification because not only does it have more stocks - 500 - but the stocks it owns are scattered across 11 different industry groups which include technology along with a whole bunch of other important industry sectors like healthcare, materials, and industrials.PerformanceExcluding dividends, QQQ has gained around 20% over the past year while SPY has gained around 7%. So QQQ wins the short-term performance race. What about longer time frames?QQQ outperformed SPY over the past 10 and 15 year period too. But if we go back 20 years, SPY wins because it gained around 197% not including dividends while QQQ gained just 101%. At the end of the day, QQQ's lights out performance during the past 1, 10, and 15 years is largely due to its concentrated portfolio in technology. SPY's less concentrated exposure to tech during this time frame resulted in a lower return. Nevertheless, over 20 years SPY did manage to outperform QQQ by a not so small 96%. This is a split decision with QQQ winning the shorter term performance race while SPY wins the longer-term race.Final Winner of ETF BattlesWho wins the ETF battle between QQQ vs. SPY? The final winner of today's hard fought battle between QQQ and SPY is...the SPDR S&P 500 ETF (SPY). It's got lower cost, better diversification, a higher dividend yield, and better long-term performance.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.