ETFs and mutual funds can both be powerful tools for investors seeking diversification. Both of these investment vehicles hold baskets of securities. When you purchase them, you’re also purchasing a small amount of the companies they’re invested in.
This allows investors to buy a piece of a diversified portfolio in a single transaction, offering instant exposure to a specific market segment or asset class.
Of course, choosing the right ETF or mutual fund is important for building a successful investment strategy. It all boils down to your investment goals and risk tolerance. While there are many options, this article will focus specifically on SWPPX vs. VOO.
Contrary to popular belief, SWPPX’s value tilt doesn’t necessarily guarantee superior returns compared to VOO’s market-cap weighting, and the choice between them depends more on individual trading styles and fees.
Keep reading for tips on how to choose between these investments.
What is SWPPX?
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Schwab S&P 500 Index Fund (MUTF: SWPPX) is a mutual fund offered by Charles Schwab. It aims to track the performance of the S&P 500 Value Index. Unlike the standard S&P 500 Index, the Value Index focuses on companies considered undervalued based on specific metrics like price-to-earnings ratio or price-to-book ratio.
The idea is to capture higher returns when the market fairly values these companies.
As a mutual fund, SWPPX trades at the end of each business day at a single price determined by the fund’s net asset value. Unlike stocks, you cannot buy or sell shares throughout the day.
What is VOO?
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Vanguard S&P 500 ETF (NYSE: VOO) is very different from SWPPX in structure but shares a similar goal. VOO tracks the performance of the S&P 500 Index, offering broad exposure to the 500 largest publicly traded companies in the US. This provides investors a diversified way to participate in the overall US stock market.
It’s important to note that this is the standard S&P 500 index, not the value index.
Unlike SWPPX, VOO is an ETF. In other words, it trades throughout the day just like any other stock, not just at the end of the day like a mutual fund. Therefore, there is a bit more trading flexibility than a mutual fund.
SWPPX vs. VOO: Which is Right for You?
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Fees
Both SWPPX and VOO have very low expense ratios. Currently, SWPPX’s expense ratio is 0.02%, while VOO’s is 0.03%. This is far lower than the industry average.
Every ETF and mutual fund has an expense ratio. This fee pays for the fund’s management. While it’s typically a very low percentage, it can add up over time, especially if you’re planning to hold the fund for some time.
The difference in fees between SWPPX and VOO is so low that it shouldn’t play a huge role in which one you choose to invest in.
Risk
Risk can be hard (or even impossible) to measure. That said, many investors look at an investment’s Beta as a risk measurement.
Beta measures the volatility of an investment compared to the overall market. The market always has a Beta of 1 and sets the baseline for all other measurements. A Beta higher than one indicates that a stock is more volatile than the overall market. (In other words, it goes up and down more than the market.) A Beta lower than one indicates that a stock is less volatile than the overall market and possibly less risky.
Currently, VOO’s Beta is 1.00, making it almost exactly as volatile as the market as a whole. SWPPX has the same Beta of 1.00. Therefore, according to their Beta, these funds have a similar risk.
However, SWPPX has a growth orientation, potentially making it a bit riskier. That said, as we’ll see, SWPPX moves very similarly to VOO despite tracking a slightly different index.
Compare Historical Performance
While SWPPX and VOO track the S&P 500 Index, their underlying focus (value vs. market cap) can lead to slight differences in historical performance. Surprisingly, both have very similar returns despite this difference in focus.
Of course, past performance is not necessarily indicative of future potential. These funds are so similar in terms of historical performance that choosing between them almost seems to be a false choice. Here’s a table comparing each over several years:
| VOO | SWPPX | |
| 1-Year | 28.15% | 28.14% |
| 3-Year | 9.52% | 9.53% |
| 5-Year | 15.76% | 15.77% |
| 10-Year | 12.65% | 12.63% |
As you can see, these investment vehicles are extremely similar in terms of their historical performance. Therefore, despite its focus on growth, SWPPX doesn’t actually grow anymore compared to VOO.
Therefore, performance shouldn’t be one of the main factors you’re looking at! That comes down to trading flexibility, which we’ll talk about below.
Top Holdings
Both SWPPX and VOO aim to provide exposure to the S&P 500, but their weighting methodology has a key difference.
- SWPPX (Value Tilt): As a value fund, SWPPX focuses on companies considered undervalued based on specific metrics. This means the fund focuses on companies with a lower price-to-earnings ratio than the overall S&P 500.
- VOO (Market Cap Weighting): VOO, on the other hand, tracks the S&P 500 by market capitalization. This means that the largest companies by the total market value will have the biggest weighting.
Therefore, the difference is in weighting, not necessarily the companies themselves.
Here’s a list of the top ten holdings in VOO and SWPPX:
- Microsoft Corporation (NASDAQ: MSFT)
- Apple Inc. (NASDAQ: AAPL)
- NVIDIA Corporation (NASDAQ: NVDA)
- Amazon.com, Inc. (NASDAQ: AMZN)
- Meta Platforms, Inc. (NASDAQ: META)
- Alphabet Inc. (NASDAQ: GOOGL)
- Alphabet Inc. (NASDAQ: GOOG)
- Berkshire Hathaway Inc. (NYSE: BRK-B)
- Eli Lilly and Company (NYSE: LLY)
- JPMorgan Chase & Co (NYSE: JPM)
The main difference is the percentage each asset represents. For instance., MSFT is 6.96% of VOO but 6.91% of SWPPX. That’s a very small difference, but it translates to the very small difference in performance we saw previously.
Trading Flexibility
While both SWPPX and VOO offer exposure to the S&P 500, a crucial difference lies in their trading mechanisms, impacting your investment flexibility.
As a mutual fund, SWPPX trades at the net asset value calculated at the end of each trading day. This means that you can only buy and sell shares at the price each day.
On the other hand, VOO is an ETF, so it trades very similarly to a stock. You can trade throughout the trading day on a stock exchange, buying and selling shares throughout trading hours. This offers a lot more flexibility. Of course, like with any stock, there is no guarantee your order will be filled at the desired price, especially if market conditions are volatile.
Of course, if you’re planning to hold for a long time, this flexibility probably doesn’t matter. Daily trading availability doesn’t matter much if you don’t plan to buy and sell regularly. In that case, you may want to go with SWPPX because of its slightly lower fees.
Choosing the Right Fund for You
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SWPPX and VOO both offer compelling options for gaining exposure to the US stock market through a single investment. While both track the S&P 500, their underlying focus (value vs. market cap) and structure (mutual fund vs. ETF) lead to slight differences in fees, risk profiles, historical performance, and trading flexibility.
SWPPX has slightly lower fees than VOO, but this difference is negligible in most situations. Still, SWPPX does allow you to keep a bit more money in your pocket! Another factor to keep in mind is trading flexibility. VOO allows you to trade at any point during the day, while SWPPX only trades at the end of the day (like most mutual funds).
Ultimately, both of these funds are very similar. The difference is in their structure. Despite how it’s advertised, SWPPX doesn’t offer a huge growth-focus. It performs very similarly to VOO.
If you want an ETF with a more growth-focused focus, you may want to consider VOOG. We have an article describing the differences between VOO vs. VOOG.
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