There are many different investment options available to investors, and two of the most popular are the Spy ETF and the IWM ETF. Both of these funds track different indexes, so it can be difficult to decide which one is right for you. In this article, we will compare and contrast these two funds and help you decide which is the better option for your stock investments.
What is Spy ETF?
The SPDR S&P 500 ETF (SPY) is one of the world's largest and most popular ETFs. SPY tracks the S&P 500 Index, which is made up of large-cap US stocks. Because it tracks such a broad index, SPY is considered avery safe and stable investment.
What is IWM ETF?
The iShares Russell 2000 ETF (IWM) is an ETF that tracks the Russell 2000 Index, which is made up of small-cap US stocks. IWM is considered a more volatile investment than SPY because small-cap stocks are generally more volatile than large-cap stocks.
Difference Between SPY and IWM
Now let's compare and contrast these two ETFs.
1. Fund Composition
The SPDR S&P 500 ETF seeks to track the performance of the S&P 500 Index, which is a diversified large-cap U.S. equity index. The iShares Russell 2000 ETF tracks the investment results of the Russell 2000 Index, which measures the performance of small-cap companies in the U.S. equity market.
So, the SPY is focused on large-cap companies while IWM is focused on small-cap companies.
SPY is made up of 500 different stocks, while IWM only has 2000.
The top holdings for SPY are Apple, Microsoft, Amazon, Facebook,and Alphabet (Google), while the top holdings for IWM are Actavis PLC, Amerisource Bergen Corporation, and Anadarko Petroleum Corporation.
The difference in fund composition leads to different risk profiles. Small-cap stocks are generally more volatile than large-cap stocks. So IWM is considered to be a higher-risk investment than SPY.
2. Industry Exposure
The SPDR S&P 500 ETF exposes you to all 11 sectors of the U.S. economy, while the iShares Russell 2000 ETF is more sector-specific.
SPY has significant exposure to information technology ,financials, and healthcare. IWM has significant exposure to industrials, energy, and materials.
So, if you're looking to invest in a specific sector, IWM may be a better choice. But if you're looking for broad exposure to the U.S. stock market, SPY is the way to go.
3. Holding and Performance
IWM is a passively managed ETF that tracks the Russell 2000 Index. The fund holds over 2000 stocks in total, with the top ten holdings accounting for only about 15% of assets. This provides IWM with greater diversification and a lower concentration risk than SPY.
From a performance perspective, IWM has outperformed SPY over the last five years. IWM has returned an annualized 13.84% compared to SPY's 11.57%.
Looking at the year-to-date performance, IWM is up 14.62%, while SPY is up only 11.51%.
SPY, on the other hand, tracks the S&P 500 Index. The fund holds only the 500 largest US stocks, which a committee chooses. This gives SPY a more concentrated portfolio than IWM, with the top ten holdings making up about 28% of assets.
SPY's outperformance over IWM in the last five years is largely attributed to its exposure to large-cap stocks, which have outperformed small caps in recent years.
However, looking at the year-to-date performance, IWM has been the better performer. This is likely because small-cap stocks have outperformed
large-cap stocks so far in 2019.
4. Risk Analysis
So, which is the better investment? In terms of risk, IWM is the clear winner. It has a beta of 0.65, meaning it is less volatile than the market as a whole. Spy, on the other hand, has a beta of 0.92. This means that it will tend to move more in line with the market and is riskier.
IWM also has a lower standard deviation than Spy, meaning that it is less volatile. This makes it a better choice for investors who are looking to minimize risk.
Regarding return, IWM has outperformed SPY over the last five years. It has returned an average of 13.84% per year, while SPY has returned 11.57%.
So, if you are looking for a less risky investment with the potential for higher returns, IWM is the better choice. However, if you are willing to accept more risk in exchange for the chance of higher returns, then Spy may be a better option.
5. Annual Returns
When it comes to stock investing, there are a lot of options to choose from. But if you're looking for the best of the best, you can't go wrong with these two exchange-traded funds (ETFs): the SPDR S&P 500 ETF (SPY) and the iShares Russell 2000 Index Fund ETF (IWM).
So, which one is the better investment? Let's take a look at some key factors to compare these two ETFs.
When it comes to stock investing, annual returns are important to consider. Over the past five years, SPY has averaged an annual return of
11.57%. IWM, on the other hand, has averaged an annual return of 13.84% over
the same time period.
6. Costs
The expense ratio for IWM is 0.09%, while the expense ratio for SPY is 0.0945%. This difference is minimal, but over time it can have an impact
on returns.
When it comes to taxes, IWM may be the better choice since it generates more short-term capital gains than SPY. Short-term capital gains are taxed at your marginal tax rate, which could be as high as 37% for some investors.
SPY may be the better choice for long-term investors since it generates more long-term capital gains. Long-term capital gains are taxed at a
lower rate, which is currently 20%.
The bottom line is that costs matter, but they shouldn’t be the only factor you consider when choosing between IWM and SPY.
Conclusion
So, which ETF is the better investment? IWM or SPY?
The answer depends on your investment goals and tolerance for risk. If you are looking for a less risky investment with the potential for higher returns, IWM is the better choice. However, if you are willing to accept more risk in exchange for the chance of higher returns, then Spy may be a better option.
Both IWM and SPY are great investment choices, and you can’t go wrong with either one. The important thing is to do your research and choose the ETF that is right for you.
Should you invest your hard earned money in SPY & IWM?
You need to hear this before deciding...
We know you work hard for your money, and we want to ensure you are putting that money into the right places so you're able to live a life of freedom when these assets appreiciate.
This online investing service has helped thousands of people finally understand the market, and has proven results. They believe 5 years from now you'd wish you bought.