SPY (SPDR S&P 500 ETF Trust), VOO (Vanguard S&P 500 ETF ), and IVV (iShares Core S&P 500 ETF) are three particularly popular U.S. exchange traded funds (ETFs). All of these are intended to track the S&P 500 Index. However, each has several important differences, including differences in managers, structure, expenses, and liquidity. This paper details the differences between these three ETFs and provides information to help investors make the best choice for their needs.
Assets Under Management (AUM): Over $400 billion (as of 2024)
VOO (Vanguard S&P 500 ETF)
Management Company: Vanguard
Inception Date: September 7, 2010
AUM: Over $300 billion (as of 2024)
IVV (iShares Core S&P 500 ETF)
Management Company: iShares (BlackRock)
Inception Date: May 15, 2000
AUM: Over $300 billion (as of 2024)
SPY is the oldest among the three and boasts the largest asset size at the time of writing. These ETFs are managed by different management companies, each with subtle differences in investment philosophy, cost structure, and operational efficiency.
2. Expense Ratios Comparison
ETF management costs significantly impact long-term investment performance. Below is a comparison of the expense ratios (management fees) as of 2024:
SPY: Approximately 0.0945%
VOO: Approximately 0.03%
IVV: Approximately 0.03%
VOO and IVV have lower expense ratios compared to SPY. Particularly for long-term investors, choosing low-cost ETFs can help reduce total expenses. However, SPY also has a long history and high liquidity, so the cost difference may have a limited impact on investment performance in some cases.
3. Liquidity and Trading Volume
SPY has been around the longest and is highly traded, offering high liquidity. Specifically, its average daily trading volume can reach tens of millions of shares, resulting in very narrow bid-ask spreads.
On the other hand, VOO and IVV also possess high liquidity, but not as high as SPY. Nevertheless, they provide sufficient liquidity for daily trading activities, and their spreads are also narrow, making them not a significant issue for individual investors.
4. Structural Differences
SPY is established as a Unit Investment Trust (UIT), which comes with certain constraints. For example, SPY restricts the number of holdings and lacks flexibility in reinvestment strategies, leading to unique characteristics in dividend handling and rebalancing methods. It also has a mandated operation period.
In contrast, VOO and IVV are managed as open-end funds, offering greater flexibility in the number of holdings and rebalancing methods. This can enhance their ability to closely track the index.
For these reasons, there may be subtle differences in dividend rates among the three ETFs.
5. Dividend Handling
There are differences in how dividends are reinvested:
SPY: Pays dividends in cash, requiring investors to reinvest them manually.
VOO and IVV: Offer automatic dividend reinvestment programs, allowing dividends to be reinvested automatically.
Automatic dividend reinvestment is advantageous for maximizing compound growth, making VOO and IVV more convenient for long-term investors. However, reinvestment may not be available for some investors in many cases, so be sure to pay attention to this point.
6. Tracking Error (Index Tracking Error)
Tracking error measures how closely an ETF’s price movement aligns with its benchmark index. Generally, VOO and IVV exhibit low tracking errors, maintaining high correlation with the S&P 500 Index. SPY also maintains high correlation, but due to structural differences, it tends to have slightly higher tracking errors.
However, in reality, the differences in tracking error among these three ETFs are minimal and have little impact on long-term investment performance.
7. Brand and Reliability
SPY: With the longest history and largest size, it is highly reliable and widely recognized as a representative ETF of the market.
VOO: Vanguard is renowned for offering low-cost investment products, highly regarded by long-term investors.
IVV: BlackRock’s iShares brand is globally trusted and popular among a wide range of investment product lineups.
Brand reliability can be an important factor in ETF selection, but SPY, VOO, and IVV all offer highly reliable products.
8. AUM and Future Liquidity
SPY has the largest AUM and highest liquidity, providing strong resilience against market fluctuations. VOO and IVV also have substantial AUM and are expected to continue stable operations. Larger AUM typically lead to lower trading costs and greater operational stability, making all three ETFs suitable for long-term investments.
9. Suitability for Specific Strategies
SPY: Its high liquidity and broad recognition make it suitable for day trading and short-term trading. It is also widely used as the underlying asset for options trading.
VOO and IVV: Ideal for long-term passive investing and index investing. Their low costs and tax efficiency make them suitable for retirement accounts and systematic investment plans.
10. Dividend Yield
Fundamentally, SPY, VOO, and IVV all track the S&P 500 Index, resulting in similar dividend yields. However, there may be slight differences in dividend reinvestment methods and payout frequencies. Specific yields vary based on market conditions and each ETF’s management policies.
11. Trading Timing and Premium/Discount
An ETF’s market price can trade at a premium (above NAV) or discount (below NAV). SPY’s high liquidity ensures that premiums and discounts remain very narrow, allowing for rapid price adjustments. VOO and IVV also maintain high liquidity, offering similar stability, though their bid-ask spreads are not as tight as SPY’s.
SPY, VOO, and IVV are all excellent ETFs that track the S&P 500 Index and are widely used as an easy way to gain exposure to the US equity market. It is important to consider your investment style, objectives, cost consciousness, and tax situation when making your selection.
