SPY vs. VOO: Which of Warren Buffett’s ETFs Is Better?
Both of the exchange-traded funds in Berkshire Hathaway’s portfolio track the S&P 500. Only one earns Morningstar’s top rating.
Editor’s Note: Berkshire Hathaway no longer owns either fund, but they’re both still highly rated by Morningstar. Check out our latest comparison of the two S&P 500 trackers.
When noted investor Warren Buffett’s Berkshire Hathaway BRK.A BRK.B released its 13F for the fourth quarter of 2024, the report suggested that Buffett’s company did not buy many stocks during the quarter, adding no new names and increasing its stake in only three companies. That’s not surprising, given the lofty valuations in the US market.
Instead, Berkshire has continued to sell stocks and build up its cash holdings. Morningstar strategist Greggory Warren, who covers Berkshire, speculates that Buffett is more concerned about his legacy than saving for a large acquisition. “Our best guess is that Buffett is building up a large cash hoard that Greg Abel can tap into, once he departs the scene, to not only buy back a ton of stock, but potentially issue a special one-time dividend, to keep Class A shareholders engaged,” he says. “In the interim, this cash could also be tapped to buy equities, once the market hits another correction phase.”
What did Buffett buy?
The SEC requires all institutions with $100 million or more in assets to disclose their equity holdings quarterly in a 13F report. However, Morningstar’s Warren points out that this may not be the final list of stocks that the company bought.
“The SEC occasionally permits confidential treatment for new stock purchases by large portfolio managers, exempting them from required disclosure in quarterly 13F filings when ‘such action is necessary or appropriate in the public interest and for the protection of investors or to maintain fair and orderly markets,‘” Warren explains. “Berkshire received an exemption last quarter (much as it has at different times in the past) as well as for the third quarter of 2024, and now its biggest stock purchase during the third and fourth quarters remains a mystery to investors. Eventually, the company will disclose the stock (or stocks) that they have been buying.”
Warren Buffett’s Berkshire Owns 2 ETFs: SPY and VOO
Regardless of what Berkshire buys or sells, one of the cheapest ways for an investor to diversify is with an exchange-traded fund. If you want to buy what Buffett has at Berkshire, he has two ETFs listed on the 13F:
Both funds passively track the S&P 500. Morningstar associate analyst Brendan McCann, who covers both ETFs, says the bedrock of the strategy they follow is market-cap-weighting.
“Market-cap weighting harnesses the market’s collective wisdom of the relative value of each holding with the added benefit of low turnover and associated trading costs,” McCann says. “It’s a sensible approach because the market tends to do a good job pricing large-cap stocks.”
Despite following the same basic strategy, there are some structural differences between SPY from VOO. SPY was launched as a unit investment trust, which prohibits its managers from engaging in some basic operations available to other ETFs. For example, managers of SPY cannot reinvest dividends, use derivatives to equitize cash, or lend securities, which provides the fund with a small amount of additional income. Though these practices do carry some risk, it is marginal. Overall, it’s important to be aware of these structural differences. Morningstar analysts see a clear, albeit small, advantage for investors that choose VOO over SPY due to its structural inefficiencies.
SPY vs. VOO: Which ETF Is Better?
The Morningstar Medalist Rating for funds can help answer this.
The Medalist Rating is the summary expression of our forward-looking analysis of investment strategies. The rating is expressed on a five-tier scale running from Gold to Negative. The top three ratings of Gold, Silver, and Bronze indicate that our analysts expect the investment vehicle to outperform on a risk-adjusted basis relative to its Morningstar Category index or category median over the long term.
Here are the key metrics for SPY and VOO:
- Morningstar Medalist Rating: Silver
- Morningstar Rating: 5 stars
- Prospectus Net Expense Ratio: 0.09%
- Morningstar Medalist Rating: Gold
- Morningstar Rating: 5 stars
- Prospectus Net Expense Ratio: 0.03%
Overall Winner: Vanguard S&P 500 ETF
Both SPY and VOO are highly rated. “The funds accurately represent the large-cap opportunity set while charging rock-bottom fees, a recipe for success over the long run,” says McCann.
Though McCann favors the market-cap-weighting approach, he acknowledges the potential risks in the strategy.
“When a few richly valued companies or sectors power most of the market gains, market-cap weighting may expose the strategy to stock- or sector-level concentration risk. As of year-end 2024, the top 10 holdings made up the largest portion of the index (37%) in several decades, and the 34% allocation to technology stocks was the highest since the dot-com bubble. But this is not a fault in design. The S&P 500 simply reflects the market composition. In the long run, broad diversification, low turnover, and low fees outweigh these risks.”
While the two ETFs follow the same strategy, they earn different ratings.
VOO earns a top rating of Gold, while SPY earns the next best rating of Silver. McCann says the reason is fees and inefficiencies of the unit investment trust structure. The differences may be minimal, but there’s no reason to leave cash on the table. VOO charges 0.03%, while SPY charges 0.09%. With all else equal, the fund with the lower fee is more aligned with investors’ best interests.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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