Home>Video>3 Low-Cost Options for Tracking the S&P 500

3 Low-Cost Options for Tracking the S&P 500

Thu, 10 Sep 2015

SPDR S&P 500 offers more liquidity, while the Vanguard and iShares ETFs can more flexibly reinvest dividends and engage in securities lending.


Video Transcript

Mike Rawson: There are three ETFs that track the S&P 500 Index. All three offer low-cost and tight tracking to the S&P 500, but there are some subtle differences. SPDR S&P 500 (SPY) is the oldest and most liquid U.S. ETF, and it has the most liquid options market among the three. SPY is structured as a unit investment trust, which prohibits it from reinvesting the dividends it receives. This creates a cash drag when prices are rising. SPY is also not allowed to engage in securities lending--a technique many funds use to generate extra income that can be used to defray the cost of replicating an index.

In contrast to SPY, iShares Core S&P 500 (IVV) and Vangaurd S&P 500 (VOO) are set up as regulated investment companies, a more flexible legal structure that allows reinvesting dividends and securities lending. While iShares' IVV is a stand-alone exchange-traded fund, Vanguard's VOO is a separate share class of a mutual fund. VOO also has the lowest expense ratio of the three, and this has given it a slight performance edge since its inception.

  1. Related Videos
  2. Related Articles
  1. An ETN Is Not a Kleenex

    Although they're often collectively called 'ETFs,' exchange-traded funds, exchange-traded notes, and investment trusts have important differences investors should be aware of.

  2. Morningstar Minute: Our Favorite S&P 500 ETF

    Among the several competing players, one particular S&P index tracker stands out with its lower fees and flexible structure.

  3. What Happened With ETF Pricing on Monday?

    Morningstar's Ben Johnson discusses the recent pricing disconnect, and outlines some best practices for investors looking to trade ETFs.

  4. Do Investors Use Index Funds Wisely?

    Dollar-weighted returns suggest investors use passive funds more effectively than active funds--but a number of caveats footnote that conclusion, says Morningstar's Ben Johnson.

  5. Investors Grow Cautious on Stocks

    May was the worst month in over a year for flows to U.S. equities, while many core bond funds are receiving inflows as rising-rate concerns abate.

  6. Stock ETFs Worth Sticking Around For

    Although the stock market isn't a screaming buy today, investors shouldn't completely abandon equities for bonds. Here are some stock ETFs that are worth a closer look.

  7. Low Volatility Is Not a Substitute for Value

    S&P's Craig Lazzara discusses several approaches to factor-based investing and why individuals should be aware of the differences in index construction.

  8. Silver-Rated CEF Is an Intriguing Alternative Income Option

    Nuveen S&P 500 Buy-Write Income produces more income and less volatility than a traditional S&P 500 fund, but its upside potential is limited.

©2017 Morningstar Advisor. All right reserved.