The SPDR S&P 500 ETF (NYSEArca: SPY) is the largest and oldest exchange traded fund, but that doesn’t mean you have to automatically look at this fund to track the S&P 500.
Of the three ETFs that track the S&P 500 index and have a 10-year track record, SPY is the worst performer, reports Eric Balchunas for Bloomberg.
The iShares Core S&P 500 ETF (NYSEArca: IVV) has outperformed SPY by an average 0.05% on an annualized basis over the past 10 years. The Guggenheim S&P 500 Equal-Weight ETF (NYSEArca: RSP) outpaced SPY by 2.27% over the past 10 years. [Equal-Weight ETF Still Beating the S&P 500 a Decade Later]
SPY, unlike many of the newer ETFs registered as a 1940 Act Regulated Investment Company, is structured as a unit investment trust, or UIT. Consequently, there is a slight cash drag as dividends can only be reinvested quarterly, whereas open-end funds can re-invest daily. Moreover, UITs can’t lend out securities and collect fees to help bolster total returns, or use index futures.
However, institutional investors favor SPY because of the attractive liquidity aspect – about 83% of SPY is held by institutional investors, whereas 51% of IVV assets are held by institutions.
“Large institutions moving tens of millions of dollars will likely prefer to use SPY,” according to Morningstar analyst Michael Rawson.
More retail investors steered toward IVV, capitalizing on the iShares ETF’s smaller 0.07% expense ratio, compared to SPY’s 0.095% expense ratio. RSP comes with a more expensive 0.40% expense ratio, but that is attributed to the equal-weight methodology.
Unlike SPY and IVV, RSP equally weights the 500 components of the S&P 500. As a result, smaller companies have a greater influence on the fund’s performance.
“In addition, there may be a slight improvement in return resulting from the strategy’s need to periodically rebalance by selling recent winners and buying recent losers, which results in a forced buy low/sell high approach.,” Morningstar‘s Michael Rawson said in an overview of RSP.
For more information on the S&P 500, visit our S&P 500 category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own SPY.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.