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S&P 500 ETFs give investors a variety of ways to buy the largest 500 companies in America, but with so many options, how do you know which fund fits your portfolio? Take a look at Benzinga's top picks for the best S&P 500 ETFs.
The Best S&P 500 ETFs:
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Best S&P 500 ETFs
Using the above criteria, Benzinga has compiled a list of the best S&P 500 ETFs. Only 3 ETFs use the S&P 500 as a true benchmark; the others on this list track subtly different indexes comprised of the same selection of stocks.
1. Best Overall: iShares Core S&P 500 ETF (IVV)
BlackRock’s iShares has developed a number of useful investment vehicles, but its S&P 500 ETF might be the best of the bunch. Boasting a tiny 0.04% expense ratio, this ETF closely tracks the S&P 500 and only slight deviations occur throughout the year (12-month median tracking difference of -0.04%). The fund began trading back in May 2000 and has returned 5.59% since its inception.
While smaller than its peer SPY, the IVV still provides plenty of liquidity and discloses its holding daily (unlike other S&P 500 ETFs). IVV is a great core holding for any long-term portfolio and you’ll save at tax time thanks to the fund’s structure. iShares’ fund advisors claim to have never paid capital gains in a decade and instead, deliver qualified dividends where high earners pay less in taxes. IVV is part of the iShares core portfolio of ETFs, which are designed to form the basis of a long-term investment portfolio.
2. Best for Low Expenses: Vanguard S&P 500 ETF (VOO)
Few investment firms have helped customers cut costs more than the Vanguard Group, whose founder Jack Bogle pioneered the use of index funds over actively managed mutual funds. Vanguard had no fear when it ventured into the ETF space, either. Its S&P 500 ETF makes a great core holding in any portfolio.
With a tiny 0.03% expense ratio, VOO is one of the cheapest ETFs available today. It doesn’t have the volume of its predecessor, SPY, but it still trades over 3 million shares per day and is available at every major brokerage. VOO currently has over $100 billion in assets under management and has mirrored the S&P 500 almost exactly since its inception in 2010, returning 13.49% compared to the S&P's 13.52%.
3. Best for Liquidity and Volume: SPDR S&P 500 ETF Trust (SPY)
The oldies can still be goodies when it comes to index funds, and the world’s first ever ETF, "born" in 1993, remains one of the strongest buys if you’d like to add broad S&P 500 exposure to your portfolio. The SPDR S&P 500 ETF Trust (SPY) was designed to track an index like the S&P 500.
The fund is slightly more expensive than its peers IVV and VOO at 0.0945%, but the daily trading volume makes a more liquid investment. SPY also differs from IVV and VOO in fund structure.
As a unit investment trust (UIT), SPY doesn’t reinvest dividends into the portfolio and shields investors from having to pay capital gains. UITs have a defined termination date and SPY is scheduled to terminate on January 21, 2114.
4. SPDR Portfolio S&P 500 ETF (SPLG)
SPDR Portfolio S&P 500 ETF (SPLG) aims to track the total return performance of the S&P 500. You can tap into the low-cost SPDR Portfolio ETF lineup with this fund, which offers precise, comprehensive exposure to the U.S. large-cap market segment collection of core-exposure funds right in line with the S&P indexes.
The fund considers sector balance, minimum size and liquidity and is rebalanced quarterly. You may want to opt for SPLG if you're a retail investors because the shares trade with a lower handle and expense ratio compared to SPY. SPLG's expense ratio is a low, low 0.03%.
5. Best for Large-Caps: Schwab U.S. Large Cap ETF (SCHX)
Many index funds competing with the big 3 (IVV, VOO and SPY) follow similar yet different benchmarks than the S&P 500 index. The Schwab U.S. Large Cap ETF tracks the 780 largest-cap stocks in the United States, giving exposure to an additional 280 companies not available in strict S&P 500 index trackers.
The top 10 holdings are nearly identical to the holdings of SPY, IVV and VOO, but with less weight on the top names like Apple, Microsoft and Amazon. The top 10 holdings only comprise 19% of the fund, compared to 22% of the funds more strictly focused on S&P 500 companies. Despite this different structure, the SCHX follows the S&P 500 quite closely and does it for a miniscule 0.03% expense ratio.
6. Best for Maximizing Gains: iShares S&P 500 Growth ETF (IVW)
Tracking the S&P 500 index guarantees only market returns, so what should investor do to beat the market without adding leverage? That’s where the iShares S&P 500 Growth ETF comes in. Using 3 factors, IVW gives extra weight to companies displaying growth characteristics: earnings growth, sales growth and momentum.
Weighting stocks by these factors means the fund will lean heavily toward the tech portion of the index and the top 10 holdings comprise over 34% of the fund's holdings. A 0.18% expense ratio makes this fund more expensive than SPY, IVV or VOO.
7. Best for Mid-Cap Balance: Invesco S&P 500 Equal Weight ETF (RSP)
Based on the S&P 500 equal weight index, RSP invests 90% of its assets in securities that are on the equal weight index. The fund and index are rebalanced quarterly, and they often lean towards mid-cap stocks.
The fund is diversified (from greatest investment to smallest) as follows:
- Consumer Discretionary
- Consumer Staples
- Real Estate
- Communication Services
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What are S&P 500 ETFs?
The Standard and Poor’s 500 is an index of the 500 biggest companies in the United States by market capitalization trading on the New York Stock Exchange (NYSE) and NASDAQ. Formed in 1923, the first iteration was known as the “Composite Index” and tracked only a handful of securities.
In 1957, the number was multiplied to 500 and the index was rechristened the S&P 500. The index has different ticker symbol depending on the listing, but the most common are $SPX, ^GSPC and INX.
Today, 505 different companies comprise the index. Stocks in the S&P 500 are free-float capitalization weighted, wich means they’re ranked by total number of shares available for public trading. Stocks must meet 3 specific criteria to be included in the S&P 500:
- Market cap of over $6.1 billion.
- Dollar value of at least $1.
- Monthly trading volume of at least 250,000 shares.
Without the S&P 500, ETFs may have never been born. In 1993, State Street Global Advisors in Boston devised a new type of investment product. The new security would be a basket of stocks similar to a mutual fund but traded on an exchange during the day like the stocks that comprised it. This first exchange-traded fund tracked the S&P 500, traded under the ticker symbol SPY, and still does today.
Pros of Investing in S&P 500 ETFs
ETFs that track the S&P 500 have a number of benefits for investors, including:
- Exposure to a wider range of stocks than indexes like Dow Jones Industrial Average.
- Not as tech heavy as the NASDAQ Composite.
- S&P 500 ETFs often carry some of the lowest expense ratios in the industry.
- ETFs are more tax-efficient than mutual funds.
Cons of Investing in S&P 500 ETFs
There are some drawbacks to consider. This is an investment, after all, so you can’t avoid risk completely.
- ETFs are less risky due to diversification, but gains will rarely exceed average market returns.
- You must consider short term capital gains tax implications.
- Free-float capitalization weighting means smaller companies frequently ignore ETFs.
What to Look for in S&P 500 ETFs
Investors have no shortage of options when it comes to S&P 500 ETFs. Many funds make their own tweaks to the allocation or stock selection, but the best ones keep it simple. Here’s what to look for when picking an ETF:
- Availability: Is this ETF widely available through most brokerages? How much trading volume occurs in an average 10-day period? You don’t want to purchase an ETF you’ll be stuck with if things go sour, so make sure the one you buy has plenty of trading volume.
- Low fees: Since we’re looking for funds that track an index, look for those that keep fees to a minimum. After all, there’s no fund manager to pay when you buy ETFs.
- Closely tracks the benchmark: Choose an S&P 500 ETF that actually tracks the S&P 500. Every fund has its own special sauce, but you don’t want to deviate too far from the benchmark.
Choose the Best ETF for Your Portfolio
S&P 500 ETFs are a great way for investors to form a base for a long-term stock portfolio. The ETFs tracking the index have modest expense ratios, great liquidity and pose less risk than picking stocks yourself. Investors looking to build up retirement savings should start with one of the ETFs on this list.
Frequently Asked Questions
Are there risks with an ETF?
ETFs are subject to market risk. They are bought and sold to reflect the real-time changes in prices on the stock exchange.
Are stocks inside ETFs?
ETFs buy and sell stocks that track the value of the average it follows, such as the Russell 2,000. They trade on national stock exchanges at the prevailing market prices.