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In a testament to the importance and venerability of the S&P 500, the three largest US-listed exchange traded funds each track that index.
In order of assets under management, those products are the Vanguard S&P 500 ETF (NYSE: VOO), the SPDR S&P 500 ETF Trust (NYSE: SPY) – the oldest ETF in this country – and the iShares Core S&P 500 ETF (NYSE: IVV). Combined, that trio controls approximately $1.8 trillion in assets under management, or about the same size as Mexico’s GDP.
Yet, there’s an ETF that tracks the cap-weighted S&P 500 – the same gauge followed by IVV, SPY and VOO – that leads a relatively anonymous existence: the SPDR Portfolio S&P 500® ETF (NYSE: SPLG). In simple terms, SPLG is the more cost-effective, more buy-and-hold-investor-friendly counterpart to SPY. More on the cost issue later.
SPLG was rebranded in 2020, but it has just $63 million in assets under management. Odd for any number of reasons, not the least of which is precedent for issuers finding success with ETFs designed to be cheap, long-term counterparts to older, well-known products.
SPLG Has a Cost Advantage
One of the big reasons VOO usurped SPY in terms of size is because the former is less expensive than the latter. The Vanguard S&P 500 ETF charges just 0.03% per year, or $3 on a $10,000 stake, compared to SPY’s still low 0.09%.
That gap persists because SPY is largely a tool for short-term traders and other, more glamorous market participants, such as hedge funds and high-frequency trading shops. Conversely, VOO is beloved by advisors and retail investors because of its low annual expense ratio.
There’s nothing wrong with that sentiment, but if fund fees matter – they do – and each basis point saved is a win for clients and investors – then SPLG deserves more fanfare simply because its expense ratio is 0.02%, or below what’s found on VOO.
In fact, SPLG is in a tie with another broad market domestic equity fund for the honor of second-cheapest US-listed ETF. There are some, many with temporary fee waivers, that don’t levy yearly expenses. Additionally, SPLG should be a fan favorite among price-conscious retail investors. The SPDR ETF closed at $65.74 on May 6 while the average closing print for IVV and VOO on the same day was $537. Translation: SPLG does the same thing as its larger rivals with a lower fee AND a lower price tag.
SPLG for the Long-Term
For those deciding between SPY and SPLG, the answer is easy. It boils down the holding period. If it’s just a few days, SPY’s revered liquidity makes that the preferred option. A holding period of months or years makes SPLG the winning idea.
(Image Courtesy: State Street Global Advisors (SSGA))
“You might have a 10-year time horizon and rebalance 10% of your position quarterly,” notes SSGA. “If we assess the total cost of ownership between the same ETF at $500/share with an expense ratio of 0.0945% and an ETF at $60/share with an expense ratio of 0.02% where both funds trade with $0.01 bid-ask spread — again, assuming no change in market price, and no additional tracking difference between these two funds — you would pay less in total cost with the lower priced ETF, despite greater transaction costs.”
That also means SPLG saves clients and investors money not only when compared to SPY, but also to IVV and VOO, too.