SPY v SPLG: Which S&P 500 ETF is Right for You?

Thank you Jesus for all you’ve given! Even if it feels like you don’t have all you want the truth is we never got what we deserved and for that I’m thankful.

Now, on to discussing these two ETF’s. Are they the same? Is one better than the other?

In the world of ETF’s, SPY v SPLG stand out as two very popular options among investors seeking S&P 500 exposure. They both track the same benchmark but there are some distinct differences that may appeal to different types of investors. In today’s post I’ll be discussing several of their similarities or differences, along with some pros and cons to each ETF.

To begin our debate of SPY v SPLG, here are links to each funds website if you wish to review further.

Additionally, here is a link to my Unqualified Portfolio that you may like to view. Currently, I hold SPLG but do occasionally trade in either SPY or the SPY options market. And for those new to growth investing here is a detailed guide I wrote on the topic; Growth Investing 101.

SPY ETF Overview

SPY is often referred to as “the spiders” and is among the oldest, most well known ETF’s in existence today. In fact, it has become one of the largest and most liquid ETF’s in the entire world, with unmatched trading volume or liquidity.

SPY is passively managed and aim’s to replicate the performance of the S&P 500 index. The S&P 500 or simply, “the S&P” is a market-cap weighted index of 500 large-cap stocks, representing approximately 80% of the United States stock market.

SPLG ETF Overview

SPLG, in my opinion, is SPY’s little brother. However, in recent years has gained considerable popularity given their lower expense ratio. Essentially, making it a more cost effective option for investors wanting exposure to the S&P 500 index.

SPLG is passively managed and seeks to replicate the performance of the S&P 500 index as well.

SPY v SPLG Similarities

Both SPY & SPLG invest in the same 500 companies that make up the S&P Index
SPY & SPLG use a similar weighting ideologies
Both ETF’s aim to provide investors with exposure to large-cap equities

SPY v SPLG Differences

SPY is structured as a unit investment trust
SPLG is structured as a typical ETF
SPLG has a significantly lower expense ratio compared to SPY
SPY has considerably higher trading volume compared to SPLG

Expense Ratio Comparison

The most notable difference investors will find between SPY v SPLG is the expense ratio.

SPY – 0.09% expense ratio
SPLG – 0.02% expense ratio

The lower expense ratio of SPLG can lead to remarkable cost savings over a long period of time. For perspective, on a $10,000 investment over 10 years (assuming 5% return CAGR) you’ll pay $124 to hold SPY and only $26 dollars for SPLG. Over 20 or 30 years the difference becomes even more pronounced.

Liquidity and Trading

Liquidity is simply the ability to buy or sell. It essentially means there are plenty of buyers or sellers at any given time. Further, highly liquid assets have narrower bid/ask spreads. The bid/ask spread can be explained as, at any given moment, the amount we could buy and sell the ETF for. For example, at 10:30am we may be quoted $605.34 bid to $605.36 ask. If I bought the ETF at the ask of $605.34 and then immediately sold it at the bid of $605.34 I would lose the $0.02 cents. Lesser liquidity would just widen that spread.

SPY Liquidity and Trading

SPY is well known for it’s incredible liquidity.

SPY has narrow bid/ask spreads
Ability to execute any size trade without issue
Very suitable to short term strategies or institutional investors

SPLG Liquidity and Trading

SPLG has ample liquidity for most investors but does trail behind SPY.

Slightly wider bid/ask spreads
While possible, less frequently used for short term strategies
Typically suitable for retail investors wanting to buy and hold

Risk and Volatility

No SPY v SPLG debate would be complete without a volatility or risk comparison. Both ETF’s do track the same S&P 500 index so their profiles are similar. Here is what the recent data suggests.

SPY volatility – 4.07%
SPLG volatility – 4.16%

The difference in volatility is almost negligible for most investors and is likely due to tracking or management errors within the fund itself.

SPY Pros & Cons

SPY Pros

Unrivaled liquidity and trading volume
Narrow bid/ask spread
Most popular options market
Popular ETF that is well known worldwide

SPY Cons

Higher expense ratio compared to SPLG
Slightly less tax-efficient than SPLG

SPLG Pros & Cons

SPLG Pros

Lower expense ratio compared to SPY
Slightly better tax efficiency
Suitable for long term buy and hold investors

SPLG Cons

Lower trading volume and liquidity
Less popular options market

Investor Suitability

SPY Suitability

SPY ETF is generally better suited to active traders requiring unmatched liquidity or institutional investors moving large positions. Additionally, options traders can deploy every possible options strategy in existence or deploy exotic strategies at will. The options market is among the most liquid currently available.

SPLG Suitability

SPLG is ideal for the long term buy and hold investor wanting exposure to the S&P 500 index. Moreover, SPLG boasts a significantly better expense ratio for investors holding the fund over many years. SPLG has become a favorite among newer investors or investors preferring the more traditional ETF structure.

Final Thoughts

While the SPY v SPLG debate may continue on into the future, it seems clear to me that holding one over the other is mostly trivial and could only be determined by a few factors. If you’re looking for liquidity or a shorter duration investment then SPY is likely preferred. Additionally, since SPY is the most recognizable ETF in the world some of the most sophisticated traders are involved in that market. For a newer trader or investor wanting to cut their teeth with the big boys they really need not look elsewhere. Successful traders in this market can be reasonably confident they’re strategy or system is a capable one.

On the other hand, SPLG is emerging as quite the contender. With retail investors becoming more and more common SPLG has certainly garnered a respectable name across the industry. Should you be seeking a long term buy and hold investment then SPLG is the clear favorite with the lower expense ratio.

In the end, when considering SPY v SPLG the fund you choose will be dependent on what need is most important. Both ETF’s track the same index and as we’ve seen have similar risk profiles. Making the true determining factor for SPY v SPLG, speed vs longevity.

Until the next post

God bless,

Jeff