SPY vs XLG: Battle of the S&P 500 ETFs

We break down the similarities and differences of the two U.S. large-cap funds.

In the large and ever-expanding world of exchange-traded funds, there are multiple ways to gain exposure to an index, even one as mundane as the S&P 500. 

Since U.S. mega-cap tech stocks are leading the market, it’s only natural that the largest and oldest U.S.-traded ETF, the SPDR S&P 500 ETF Trust (SPY), faces a challenge from a more concentrated, tech-heavy index fund like the Invesco S&P 500 Top 50 ETF (XLG).  

In this article, we’ll pit the old heavyweight, SPY, against a nimbler power puncher, XLG, to allow investors to decide which, if any of these S&P 500 index funds, deserves a place in their portfolio.  

SPY vs XLG: Similarities and Differences

While SPY and XLG are both ETFs that passively track an index of large-cap U.S. stocks, their similarities begin to fade into differences from there. Here’s a breakdown of the funds’ similarities and differences, including market coverage, risk and return, dividend yield and fees:  

Market Coverage

• SPY: The SPDR S&P 500 ETF Trust is a market-cap weighted index fund that tracks the entire S&P 500 index, encompassing 500 of the largest publicly traded companies in the U.S. across all sectors. This diversification offers a snapshot of the overall U.S. stock market performance. The largest sector by portfolio concentration is technology at 32%. 
• XLG: The Invesco S&P 500 Top 50 ETF is also a cap-weighted index fund, but it’s more of a concentrated powerhouse as it focuses on the top 50 holdings within the S&P 500. Because of this narrower concentration, XLG’s holdings are more heavily tilted to technology with a weighting of more than 43%. 

Risk and Return

• SPY: Due to its broad diversification, SPY generally exhibits moderate risk and return compared to individual stocks or sector-specific ETFs. 
• XLG: By concentrating on the top 50 companies in the S&P 500 by market cap, XLG has historically produced higher returns compared to SPY. However, since XLG’s performance relies on fewer leading companies, it carries higher risk and may underperform when those companies are out of favor. 

Dividend Yield

• SPY: This ETF offers a dividend yield that roughly reflects the average yield of the S&P 500 companies, which is tilted toward large growth stocks, but also has many value-oriented dividend-paying stocks. SPY’s yield is 1.23%. 
• XLG: This fund’s focus on growth stocks tends to reduce its exposure to dividend companies, which explains its low yield of 0.89%.  

Fees

• SPY: Although some of the largest S&P 500 ETFs have fees as low as 0.03%, SPY’s expense ratio of 0.095% is still lower among the broader universe of ETFs. 
• XLG: This fund’s expense ratio of 0.20% is relatively low for an ETF, but it’s more than double that of SPY’s expenses.

SPY vs XLG: Performance & Key Data

Data as of June 5, 2024. 

Tip: To see more detail, see etf.com’s fund comparison page for SPY vs XLG. 

SPY vs XLG: Which Is Best?

Investors who prioritize well-rounded exposure to the U.S. market with moderate risk and return, SPY might be a better fit. For investors seeking potentially higher returns and a greater focus on mega-cap technology companies, XLG could be a compelling choice. It’s possible that neither S&P 500 index fund is the correct choice for a given investor’s portfolio.  

While either fund, SPY or XLG, could make good core holdings within a diversified mix of funds, or potentially a standalone stock holding for a beginning investor with moderate to high risk tolerance, all types of investors should carefully consider their investment goals and risk tolerance before making any investment decisions.