3 Low-Cost Options for Tracking the S&P 500
SPDR S&P 500 offers more liquidity, while the Vanguard and iShares ETFs can more flexibly reinvest dividends and engage in securities lending.
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.
Michael Rawson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.