Better Than SPY (And No One Talks About It)

Better Than SPY (And No One Talks About It)

Apr. 15, 2024

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I love listening to podcasts/videos where smart people talk about making money.

But too often it devolves into the same old regurgitations.

Want to make money investing?

SPY, SPY, SPY or VOO, VOO, VOO!

It’s exhausting.

Of course, trading systems almost always beat index funds–but they’re complicated.

To start using a Futures system that produces way more than SPY or VOO, you’d have to download Tradestation, be barely competent in EasyLanguage, and manage rollovers a few times a year. Even though it’s very little work, it seems daunting when compared to dollar-cost-averaging an ETF.

But here’s what I don’t get.

There are better ETFs than SPY or VOO.

(Gasp.)

And they’re hiding in plain sight.

What’s one that’s better?

XLV (the Healthcare ETF). Don’t believe me?

Here’s the long-term comparison between SPY and XLV. Remember, long-term comparisons are why the cult-like money movements exist in the first place.

From 2001 to now, here it is:

In every way, XLV is better. Most prominently, XLV returns 9.2% per year and SPY only returns 8.1%.

That pretty much ends the argument, right?

Well, let’s move a little closer and start at the Great Recession of 2008. Here’s that comparison:

Once again, XLV is better in every way, out-returning SPY 11.1% to 10.2%.

Even though it clearly wins over the long-term, a SPY/VOO zealot would scream about the short-term (even though short-term results aren’t supposed to matter.)

Here’s the past 5 years:

Aha! SPY returns more!

But take a look at the other numbers. SPY’s worst year is NINE TIMES worse than XLV, and SPY’s drawdown is about TWICE as big. On a risk-adjusted basis, XLV wins. We get about the same return for way less volatility.

Why don’t zealots talk about XLV? Who knows? Maybe it’s easier to repeat stuff than it is to research stuff.

And, for fun, here’s one more ETF that’s better than SPY.

Here’s the comparison between QUAL (the MSCI USA Quality Factor ETF) and SPY:

Granted, it doesn’t pummel the SPY like XLV does, but it does return more.

If you like the simplicity of buying-and-holding, we now have a new candidate for your attention.

If you like more money and less drawdown over the long-term, XLV might be the way to go.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.