The S&P 500 Index is the most widely followed benchmark for the US equity market, and as such, it is tracked by some of the largest and most popular ETFs in the world. While all ETFs tracking the S&P 500 hold the same underlying stocks and deliver virtually identical long-term returns, key differences in fund structure, expense ratios, and liquidity make each one uniquely suited for different types of investors.
The three dominant S&P 500 ETFs are the SPDR S&P 500 ETF Trust (SPY), the Vanguard S&P 500 ETF (VOO), and the iShares Core S&P 500 ETF (IVV).
Table of Contents
Key Differences and Investor Suitability
1. Expense Ratio: The Long-Term Cost
The expense ratio is the annual fee charged by the fund, expressed as a percentage of the fund’s assets. For long-term buy-and-hold investors, a lower expense ratio is the single most important differentiating factor, as compounding fees can significantly reduce total returns over decades.
- VOO and IVV lead this category with the lowest expense ratios, making them the preferred choice for passive, long-term investors and retirement accounts.
- SPY has a significantly higher expense ratio, which can be a meaningful drag on long-term returns despite its excellent liquidity.
2. Liquidity and Trading Structure
Liquidity, measured by the Average Daily Volume (ADV), refers to how easily the ETF shares can be bought or sold without impacting the price. This is critical for active traders and institutional investors who execute large block trades.
- SPY is the oldest and most traded ETF globally, with an Average Daily Volume (ADV) multiple times higher than VOO and IVV. This superior liquidity and deep options market make it the preferred tool for day traders, institutional hedging, and options strategies.
- VOO and IVV are highly liquid enough for virtually all retail and most institutional long-term investors, but their lower ADV may result in slightly wider bid-ask spreads than SPY.
3. Fund Structure and Tax Efficiency
The structural difference between the funds primarily impacts tax efficiency and dividend handling:
- SPY is structured as a Unit Investment Trust (UIT). This older structure is restrictive: it cannot reinvest dividends immediately (it must hold them in cash until distribution) and has less flexibility in its creation/redemption process, which can make it less tax-efficient than the others.
- VOO and IVV are structured as open-end funds (Regulated Investment Company or RIC). This structure allows for greater tax efficiency through “in-kind” transfers during the creation/redemption process and permits immediate reinvestment of dividends, contributing to slightly better tracking performance and higher total returns over time.
Comparison Summary Table: SPY vs. VOO vs. IVV
| Feature | SPDR S&P 500 ETF Trust (SPY) | Vanguard S&P 500 ETF (VOO) | iShares Core S&P 500 ETF (IVV) |
|---|---|---|---|
| Issuer | State Street Global Advisors | Vanguard | BlackRock (iShares) |
| Inception Date | 1993 | 2010 | 2000 |
| Fund Structure | Unit Investment Trust (UIT) | Open-End Fund (RIC) | Open-End Fund (RIC) |
| Expense Ratio (Annual Fee) | 0.0945% | 0.03% | 0.03% |
| Liquidity (Average Daily Volume) | Highest (Extreme) | High | High |
| Tax Efficiency | Lower (due to UIT structure) | Higher | Higher |
| Best Suited For | Active traders, options strategies, institutional hedging (liquidity-focused) | Long-term investors, retirement accounts (cost-focused) | Long-term investors, retirement accounts (cost-focused) |
Note on SPLG: Another low-cost option, the SPDR Portfolio S&P 500 ETF (SPLG), is also offered by State Street. It is an open-end fund like VOO and IVV and has an even lower expense ratio of 0.02%, making it a strong competitor for cost-conscious, long-term investors.