S&P 500 ETFs offer investors a variety of ways to buy America’s top 500 companies, but with so many options, how do you know which fund is right for your portfolio? Take a look at Benzinga’s top picks for the best S&P 500 ETFs.
The best S&P 500 ETFs
You can trade certain ETFs commission-free with some of Benzinga’s favorite brokers: TD Ameritrade, TradeStation, and Firstrade.
- IShares Core S&P 500 ETF (IVV)
- Vanguard S&P 500 ETF (VOO)
- SPDR S&P 500 ETF Trust (SPY)
- SPDR S&P 500 ETF Portfolio (SPLG)
- Schwab US Large Cap ETF (SCHX)
- IShares S&P 500 Growth ETF (IVW)
What are S&P 500 ETFs?
The Standard and Poor’s 500 is an index of the 500 largest companies in the United States by market capitalization traded on the New York Stock Exchange (NYSE) and NASDAQ. Formed in 1923, the first iteration was known as the “Composite Index” and followed only a handful of stocks.
In 1957, the number was multiplied to 500 and the index was renamed S&P 500. The index has a different ticker symbol depending on the listing, but the most common are $ SPX, ^ GSPC and INX.
S&P 500 increase over time
Today, 505 different companies make up the index. S&P 500 stocks are free float capitalization weighted, meaning they are ranked based on the total number of stocks available for public trading. Stocks must meet 3 specific criteria to be included in the S&P 500:
- Market capitalization 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 never have seen the light of day. 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 a stock exchange during the day like the stocks that made it up. This first exchange-traded fund followed the S&P 500, traded under the symbol SPY, and still does today.
Benefits of investing in S&P 500 ETFs
ETFs that track the S&P 500 have a number of advantages for investors, including:
- Exposure to a wider range of stocks than indices like the Dow Jones Industrial Average.
- Not as heavy on technology like the NASDAQ Composite.
- S&P 500 ETFs often carry lowest expense ratios in industry.
- ETFs are more tax advantageous than mutual funds.
Disadvantages of investing in S&P 500 ETFs
There are a few drawbacks to consider. This is an investment, after all, so you can’t completely avoid risk.
- ETFs are less risky due to diversification, but the gains will rarely exceed average market returns.
- You must consider short-term capital gains tax implications.
- The free float weighting means that small companies often 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 adjustments to stock allocation or selection, but the best are simple. Here’s what to look for when selecting an ETF:
- Availability: Is this ETF widely available in most brokerage firms? What is the volume of transactions over an average period of 10 days? You don’t want to buy an ETF that you will be stuck with if things go wrong, so make sure the one you are buying has plenty of trading volume.
- Low fees: Since we are looking for funds that track an index, look for those that keep fees to a minimum. After all, there is no fund manager to pay when you buy ETFs.
- Closely follows the benchmark: Choose an S&P 500 ETF that in fact tracks the S&P 500. Each fund has its own special sauce, but you don’t want to stray too far from the benchmark.
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 follow subtly different indices made up of the same selection of stocks.
1. Best overall ranking: iShares Core S&P 500 ETF (IVV)
BlackRock’s iShares has developed a number of useful investment vehicles, but its S&P 500 ETF could be the best of the bunch. Enjoying a tiny expense ratio of 0.04%, this ETF closely follows the S&P 500 and only slight deviations occur throughout the year (12-month median tracking error of -0.04%). The fund started trading in May 2000 and has returned 5.59% since inception.
Although smaller than its SPY counterpart, the IVV provides a lot of cash and discloses its participation daily (unlike other S&P 500 ETFs). IVV is a great basic portfolio for any long term portfolio and you will save at tax time because of the fund structure. IShares fund advisers say they have never paid capital gains in a decade and instead pay eligible dividends where high earners pay less tax. IVV is part of the iShares Core Portfolio of ETFs, which are designed to form the basis of a long-term investment portfolio.
2. Ideal for low spending: Vanguard S&P 500 ETF (VOO)
Few investment firms have helped their clients cut costs more than the Vanguard Group, whose founder Jack Bogle pioneered the use of index funds over actively managed mutual funds. Vanguard was also not afraid when he ventured into the ETF space. Its S&P 500 ETF makes a great base position in any portfolio.
With a tiny expense ratio of 0.03%, VOO is one of the cheapest ETFs currently available. It doesn’t have the volume of its predecessor, SPY, but it trades over 3 million shares per day and is available at all major brokerage firms. VOO currently has over $ 100 billion in assets under management and almost exactly mirrors the S&P 500 since its inception in 2010, with a return of 13.49% versus 13.52% for the S&P.
3. Best for liquidity and volume: SPDR S&P 500 ETF Trust (SPY)
Oldies can still be goodies when it comes to index funds, and the first ETF in the world, “born” in 1993, remains one of the strongest buys if you want to add large exposure to the S&P 500 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 the structure of the fund.
As a unitary investment trust (UIT), SPY does not reinvest dividends in the portfolio and saves investors from having to pay capital gains. ITUs have a set termination date and SPY is scheduled to end on January 21, 2114.
4. SPDR S&P 500 ETF (SPLG) portfolio
SPDR Portfolio S&P 500 ETF (SPLG) aims to track the total return of the S&P 500. You can leverage the SPDR Portfolio range of low cost ETFs with this fund, which provides precise and comprehensive exposure to the US large cap segment of the market. fundraising for core exposures in line with the S&P indices.
The fund takes into account sector balance, minimum size and liquidity and is rebalanced on a quarterly basis. You may want to go with SPLG if you are a retail investor, as stocks trade with a lower pay and expense ratio than SPY. SPLG’s expense ratio is a low, low 0.03%.
5. Ideal for large caps: Schwab US Large Cap ETF (SCHX)
Many index funds competing with the Big Three (IVV, VOO and SPY) track benchmarks similar to but different from those of the S&P 500 Index. The Schwab US Large Cap ETF tracks the 780 largest capitalization stocks in the United States, giving exposure to an additional 280 companies not available in the strict trackers of the S&P 500 Index.
The top 10 titles are almost identical to those of SPY, IVV and VOO, but with less weight on big names like Apple, Microsoft and Amazon. The top 10 holdings account for only 19% of the fund, compared to 22% of funds more strictly focused on S&P 500 companies. Despite this different structure, the SCHX follows the S&P 500 very closely and does it for a tiny expense ratio of 0.03%.
6. Ideal for maximizing earnings: iShares S&P 500 Growth ETF (IVW)
Tracking the S&P 500 only guarantees market returns, so what should an investor do to beat the market without adding leverage? This is where the iShares S&P 500 Growth ETF comes in. By using 3 factors, IVW gives extra weight to companies exhibiting growth characteristics: profit growth, sales growth and momentum.
Weighting stocks by these factors means that the fund lean strongly towards the technological part of the index and the top 10 holdings represent over 34% of the fund’s holdings. A 0.18% spending rate makes this fund more expensive than SPY, IVV or VOO.
Choose the best ETF for your portfolio
S&P 500 ETFs are a great way for investors to build a foundation for a long-term equity portfolio. ETFs that track the index have modest expense ratios, high liquidity, and are less risky than picking stocks yourself. Investors looking to build retirement savings should start with one of the ETFs on this list.
Want to know more? Check out Benzinga’s guide to the best online brokers, free stock trading, and top ETFs for this year.
Frequently Asked Questions
Are there any risks with an ETF?
Are there any risks with an ETF?
ETFs are subject to market risk. They are bought and sold to reflect the real-time evolution of prices on the stock exchange.
Are the stocks inside ETFs?
Are the stocks inside ETFs?
ETFs buy and sell stocks that follow the average value it tracks, such as the Russell 2000. They trade on national stock exchanges at prevailing market prices.
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