ETFs versus Stocks

In the battle of ETFs versus stocks, who wins? 

2022 Return = Continuously Compounded Annual Return = LN (2022 close/2021 close)

SPY = S&P 500 SPDR
DIA = Dow Industrials SPDR
QQQ = Nasdaq QQQ Invesco ETF (tracks the Nasdaq 100 index)
ONEQ = Nasdaq Composite ETF
IWV = Russell 3000 Ishares ETF
Data Source: barchart.com

What does this table tell us? First, the Dow Jones Industrial Average outperformed! It had the highest return in our list, a -7% single digit loss, and 12 of 30 names or 40% were positive in 2022-a spectacular performance in a dismal year. 

Despite the largest loss in this table, down -32.6%, 31% of Nasdaq 100 stocks ended 2022 with a gain. Next in line, the benchmark S&P 500, was down a dismal -18.2% with only 28% or 142 of 502 stocks showing gains. Next in line, the broader Nasdaq Composite Index had 27% of its component stocks positive. And finally, the broadest index, the Russell 3000, posted 641 or 25% of its stocks with year-end gains. 

Before getting too excited, in ALL cases, partly by definition, nearly half of the component stocks had a lower return than their associated index. 52% of S&P500 names were below the SPY return, DIA-53%, QQQ-36%, ONEQ-40% and IWV-50%.

In conclusion, who wins in the battle between stocks and indexes? On a purely statistical basis the indexes and their tracking ETF wins. The odds of picking stock winners are stacked against you. 

Why conflate ETFs and indexes? Because index tracking ETFs are nearly perfect in matching their index return. Index and ETF names are used interchangeably in this post.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2023 George Rahal