A Vanguard exchange traded fund is picking up interest as a low-cost fund option to track the S&P 500, with one wealth management firm also pointing to diminishing implicit costs associated to the bid-ask spread.
Bestinvest is recommending its clients to take a look at the Vanguard S&P 500 ETF (NYSEArca: VOO) as the ETF option for exposure to the S&P 500, reports Matthew Jeynes for FTAdviser. [ETF Chart of the Day: S&P 500]
“For internal and external costs, we found the Vanguard ETF to be very attractive compared to other available funds, with a low on-going cost (net of withholding tax),” Ben Seager-Scott, senior research analyst at Bestinvest, said in the article.
VOO is the cheapest S&P 500 ETF at 0.05%, comapared to the iShares Core S&P 500 Index ETF (NYSEArca: IVV), which has a 0.07% expense ratio, and the SPDR S&P 500 ETF (NYSEArca; SPY), which has a 0.0945% expense ratio. [ETF Options to Track the S&P 500]
Moreover, Vanguard recently executed a 1-for-2 reverse split on VOO as a way to diminish implicit costs of trading the fund through tightening its bid-ask spread. [Vanguard Opens Up ‘New Front’ in ETF Fee War]
“We have every reason to expect this spread will continue to tighten as this fund continues to attract fresh interest,” Seager-Scott added. “As a result, we believe this fund is now considerably better placed than rivals who have previously relied on this liquidity gap to charge a premium.”
Morningstar analyst Michael Rawson, though, warns that VOO “has slightly higher market-impact costs because of lower trading volumes.”
SPY has a bid-ask spread of 0.01%, and shows an average 128.9 million daily average volume, according to Morningstar data. IVV has a 0.01% bid-ask spread and a 4.2 million daily average volume. VOO has a 0.03% bid-ask spread and a 1.5 million daily average volume.
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.