With over $1 trillion of net inflows in 2024, there were a lot of ETF success stories. Those included bitcoin ETFs, active ETFs, even supposedly boring fixed income ETFs. My colleague Kirsten Chang’s late 2024 recap does a great job covering these and more. I recorded a video covering some of these trends as well.
However, I wanted to dive deeper into another one Kirsten briefly mentioned. Investors exhibited a growing cost-consciousness by flocking to cheaper products.
SPY & QQQ Remained on ETF Mount Rushmore
The SPDR S&P 500 ETF (SPY ) and the Invesco QQQ Trust (QQQ ) are two of the largest and oldest U.S. ETFs. The $625 billion SPY and the $320 billion QQQ are synonymous with the ETF industry. For many investors, they are the building blocks of diversified portfolios and they swelled in size last year. In addition to each rising more than 20% in value, QQQ and SPY pulled in $29 billion and $16 billion, respectively, according to FactSet data.
QQQ is the more growth oriented of the pair. QQQ owns shares of the 100 largest nonfinancial companies that are listed on the Nasdaq. Information technology, communication services, and consumer discretionary stocks comprise most of the portfolio.
SPY is more balanced than QQQ between growth and value stocks and across sectors. Financials is the second-largest sector behind information technology. Meanwhile, healthcare is a larger weighting than communication services.
Apple, Nvidia, Microsoft, and Amazon.com are the top four holdings for both ETFs. However, SPY also owns meaningful stakes in Berkshire Hathaway, Eli Lilly, and JPMorgan, which are not found in QQQ.
Lower-Fee ETF Alternatives Gained Ground
However, in 2024 many investors also embraced less expensive versions of QQQ and SPY from the same fund families. The SPDR Portfolio S&P 500 ETF (SPLG ) and the Invesco NASDAQ 100 ETF (QQQM ) had $20 billion and $14 billion of net inflows in 2024, respectively. SPLG and QQQM now manage $54 billion and $39 billion, respectively, in assets.
SPLG has a miniscule net expense ratio of 0.02%, making it much cheaper than the 0.09% fee charged by SPY. SPLG is also 1 basis point less expensive than the Vanguard S&P 500 ETF (VOO ) and the iShares Core S&P 500 ETF (IVV ). As the names suggest, all of these ETFs hold the same companies. For short-term-oriented investors, SPY’s stronger trading volume warrants continued attention. But for those with intermediate or longer-term time horizons, the annual fee savings makes more sense
Meanwhile, QQQM’s 0.15% expense ratio is 5 basis points less than QQQ despite owning the same positions. Here too, QQQM is the better choice for those looking to hold the ETF as a core position and not a tactical one.
As the next generation of investors turn to ETFs, I’m excited many of them will be saving money annually on low-cost, broadly diversified equity products.
For more news, information, and strategy, visit ETFDB.
