The SPDR S&P 500 (SPY) ETF is one of the top gold-star funds in the world. It is the biggest ETF in the world with over $421 billion in assets. It is followed by other S&P-linked ETFs from Blackrock (IVV) and Vanguard (VOO).
The ETF tracks the biggest companies in the United States like Apple, Microsoft, Amazon, Nvidia, and Alphabet. Over the years, it has become one of the best-performing funds in the US and has achieved annualised returns of almost 10%. It has benefited from global growth and the boom of technology stocks.
The SPY ETF has a fatal flow, however. Its biggest risk is that it is highly concentrated in the technology sector. IT shares have a share of 29.26% of the total fund, leaving it a risk if there is a slowdown in the industry. The other big sectors are financials, health care, consumer discretionary, and consumer services.
Very few ETFs have outperformed the SPY ETF over the years. Invesco QQQ, which tracks the biggest American tech companies, has had over 16% in annualised returns.
SPY vs COWZ vs MOAT
VanEck Morningstar Wide Moat ETF (MOAT)
The VanEck Morningstar Wide Moat ETF (MOAT) is one of the top funds that has outperformed the SPY over the years. Over the years, it has had annualised returns of over 13% since its inception in 2012.
MOAT tracks the Morningstar Wide Moat Focus Index, which is made up of companies with a huge competitive advantage. It has an expense ratio of 0.45% and over $11 billion in total assets.
MOAT has done well even though tech is not its biggest component. Instead, most companies in the fund are financials, health care, tech, industrials, and consumer discretionary.
The biggest companies in the fund are the likes of Walt Disney, US Bancorp, Alphabet Tyler Technologies, and Masco Corporation. A key benefit of this fund is that it is a bit uncorrelated with other popular funds.
Pacer US Cash Cows 100 ETF (COWZ)
The Pacer US Cash Cows 100 ETF (COWZ) is an ETF that has also consistently beaten the SPY ETF. It was established in 2016 and has had an annualised return of 13%. The fund’s goal is to invest in companies that have a record of growing their free cash flow (FCF).
COWZ selects these companies from the Russell 1000 index. Some of the biggest companies in the fund are Mickesson, Lennar, CVS Health, Cheniere, Marathon Petroleum, and Diamondback Energy.
COWZ does well because of its focus on free cash flow yield. Free cash flow is defined as the total cash that a company retains after accounting for cash outflows. A high FCF yield means that a company is generating more cash than it needs to run its operations.
The biggest risk for COWZ is that it also has a concentration problem. While the SPY leans more towards technology, COWZ’s biggest weighting is in the energy sector. Energy companies account for about 31% of total funds followed by health care and consumer discretionary.
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