Discover Which ETF Reigns Supreme for U.S. Investors

Exchange-traded funds (ETFs) have become a mainstay of today’s financial markets, offering easy and instant diversification, low costs, and reliable performance that reduces volatility while maximizing returns. Three of the largest and most popular are the SPDR S&P 500 ETF Trust (SPY), the Vanguard S&P 500 ETF (VOO), and the Invesco QQQ Trust (QQQ). Like stocks, ETFs trade on exchanges, providing investors direct access to portfolios of stocks rather than individual companies. Their low costs, sector-specificity, and ample liquidity make ETFs a popular choice for both beginner and pro investors alike.

SPY and VOO employ the time-honored broad exposure to the S&P 500, while QQQ takes a more tech-focused approach with its Nasdaq holdings. But which of these three ETF juggernauts is a top pick for U.S. investors?

Let’s find out…

With over $618 billion in assets under management (AUM), the SPDR S&P 500 ETF Trust (SPY) is the largest ETF in the world. The fund offers strong diversification, an instant portfolio of blue-chip U.S. stocks, impressive long-term performance, and a favorable expense ratio.

While ETFs are now a significant part of the stock market, SPY is the ETF that started it all. It was launched all the way back in 1993, and it was the first ETF listed in the U.S. The ETF’s strategy is simply to invest in the largest publicly traded U.S. stocks by investing in the S&P 500 index.

The strategy is simple but has generated excellent results for investors over time. They say it’s hard to beat the market, but SPY is the market in this case. At the end of 2024, SPY produced an annualized three-year return of 8.8%, an annualized five-year return of 14.4%, and an annualized 10-year return of 13%. It’s hard to beat such double-digit annualized gains over the past five and ten years, and this sets a decent bar that other investment ideas should be capable of clearing when investors are considering when making investment decisions.

Because SPY simply invests in the S&P 500, the ETF’s holdings are essentially a who’s who of mega-cap U.S. stocks. You can gain an overview of SPY’s top 10 holdings below using TipRanks’ holdings tool. The fund offers investors instant diversification into 504 of the U.S.’s largest stocks. SPY’s top 10 holdings make up 34.3% of its assets.

SPY’s top 10 holdings include the magnificent seven tech stocks: Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), Alphabet (GOOG) (GOOGL) and Tesla (TSLA) plus other prominent mega-cap names like semiconductor giant Broadcom (AVGO) and Warren Buffett’s Berkshire Hathaway ($BRK.B).

SPY offers a reasonable expense ratio of 0.09%, meaning that an investor in the fund will pay just $9 in fees on a $10,000 investment annually. Overall, I’m bullish on SPY based on its long history of generating strong returns, its diversified portfolio of blue-chip U.S. stocks, and its reasonable expense ratio. With these factors, it’s not hard to see why it is the most popular ETF in today’s market, but there are other choices with similar appeal for investors to consider.

On Wall Street, SPY earns a Moderate Buy consensus rating based on 411 Buys, 88 Holds, and six Sell ratings assigned in the past three months. The average analyst SPY price target of $681.74 implies ~18% upside potential from current levels.

While SPY is the market’s largest ETF, with just over $635 billion in AUM, VOO is nipping at its heels with $604 billion in AUM, making it the second-largest ETF in the world. Like SPY, VOO invests in S&P 500 stocks and shares the same top 10 holdings. VOO owns 504 stocks; its top 10 holdings account for 36.2% of the fund.

VOO has also produced strong long-term returns. Using the end of 2024 as a starting point, it has generated a three-year annualized return of 8.9%, a five-year annualized return of 14.5%, and a 10-year annualized return of 13.1%.

The two ETFs clearly have a lot in common, but one subtle difference puts VOO ahead in this comparison. SPY’s expense ratio of 0.09% is entirely reasonable, but VOO comes with an even cheaper expense ratio of 0.03%, just one-third the expense ratio charged by SPY. This means an investor putting $10,000 into VOO will pay just $3 in fees over a year.

Now, even though SPY’s expense ratio is three times that of VOO’s, I can understand why readers may feel it’s a negligible difference, and in some ways, it is. However, the expense ratio begins to bite hard for more considerable investments over $1 million. I’m bullish on VOO for the same reasons as SPY—its excellent long-term performance and diversified portfolio of top U.S. stocks— but it stands out based on its lower expense ratio.

Like SPY, VOO earns a Moderate Buy consensus rating based on 411 Buys, 88 Holds, and six Sell ratings assigned in the past three months. The average analyst VOO price target of $631.09 implies ~20% upside potential from current levels.

Lastly, for a slightly different flavor, let’s examine QQQ, the fifth-largest ETF in the market with $312 billion in assets under management. Unlike SPY and VOO, which invest in the S&P 500, QQQ invests in a different index—the Nasdaq (NDAQ). The Nasdaq tech-centric focus means that QQQ is also far more tech-orientated than its two comparison peers despite also having several stocks from the S&P 500 being included. There are differences and plenty of overlap.

QQQ’s top ten holdings show how much the fund has in common with the two aforementioned ETFs, although it is less diversified and more concentrated, with just 101 holdings and a top 10 that makes up a larger 49.7% of its AUM.

While SPY and VOO have posted strong performances over the years, QQQ has performed even better. For an apples-to-apples comparison, as of the end of 2024, the tech-centric ETF has generated a three-year annualized return of 9.5%, an exceptional five-year annualized return of 20.0%, and an impressive 10-year annualized return of 18.3%.

QQQ maintains an expense ratio of 0.2%, meaning an investor will pay $20 in fees annually on a $10,000 investment. It’s therefore clearly more expensive than SPY or VOO, but this isn’t an unreasonable expense ratio per se (the average for all ETFs is 0.57%, according to SPY sponsor State Street), and I’d be willing to pay a premium for this strong performance in this case.

My only qualm about QQQ is that the fund’s valuation is higher than the S&P 500-focused ETFs. While the S&P 500 currently trades for just under 24x earnings, the more growth-oriented Nasdaq-100 trades for over 30x. This isn’t a problem per se, but if we enter a risk-off environment where growth stocks pull back, as we saw at the end of February, it’s feasible that SPY and VOO could outperform the more risk-on QQQ going forward.

Like its two peers, QQQ earns a Moderate Buy consensus rating on Wall Street based on 89 Buys, 13 Holds, and zero Sell ratings assigned in the past three months. The average analyst QQQ price target of $596.99 implies ~22% upside potential from current levels.

All three are great ETFs. I’m bullish on all three as they have generated excellent double-digit annualized returns for their investors over not years but decades. All feature diversified portfolios of top stocks and reasonable expense ratios, which means any of the three would be a good base for value investors to build their portfolios around. If I were making an investment decision today, I would invest in VOO and QQQ. VOO and SPY offer the same exposure, but VOO does so at a third of SPY’s price, making it the clear choice. I’d also consider allocating room for QQQ. Despite the fund being more expensive than its peers, its excellent performance and Nasdaq tech focus could be an option for tech value investors.

Disclosure