Mutual funds are one of the great success stories in the history of financial services.
In 1970, just 360 funds, new classes of investors could access the , and the financial services industry experienced huge .
But now, after decades of growth, the industry is under attack. With bloated fee structures, insufficient transparency, ongoing conflicts of interest and years of underperformance, the mutual fund industry is experiencing a tidal of outflows. Domestic lost $154 billion in assets in 2012 -- the fifth consecutive the industry has experienced an annual outflow.
Investors choose The Simple, Low-Cost Alternative To Mutual Funds."
Among the most popular destinations for investors shifting away from mutual funds are S&P 500 . With almost 90% of managed mutual funds underperforming their benchmarks, S&P 500 ETFs have become a popular alternative because they are traded on an exchange like a stock and have lower management fees.
In fact, the S&P 500 (NYSE: SPY) is the most popular in the world, with assets under management of $137 billion. The Core S&P 500 (NYSE: IVV) ranks fourth, with assets under management of $42 billion. Vanguard's S&P 500 (NYSE: VOO) is in the top 30, with assets under management of $6 billion.
But even though these three S&P 500 ETFs are designed to track the leading equity benchmark, there are big differences between them. Here is a closer look at the three most popular S&P 500 ETFs and what every investor needs to know about how they differ...
ThisS&P 500 is one of the oldest and popular ETFs in the , first listed in 1993. With average daily of 126 million, the S&P 500 is a popular destination for big institutional investors that need plenty of when deploying hundreds of millions of dollars into the
With an expense ratio of just .09%, S&P 500 is relatively low-cost in the world, but it's more expensive than some of its S&P 500 peers.
One of the key distinctions of the S&P 500 is that it's structured as a unit investment trust, which prohibits it from reinvesting dividends and holding securities not in the , such as . Although this leads to slightly higher carrying costs, it also enables the to track its benchmark with great precision.
That has led to an active and highly derivatives traders demand tracking precision. S&P 500 also has a one-month delay between its and the payment of dividends.
S&P 500 is a great for large, institutional investors that value a highly liquid market with the ability to absorb large trades. Its active, options market also makes it a great destination for investors using derivatives.
Core S&P 500
The liquidity to absorb multi-million dollar trades.
There are two primary differences between S&P 500 and Core S&P 500. The first is that has a lower expense ratio of .07%. The second is that is allowed to use derivatives to track its benchmark, enabling it to still closely replicate its benchmark while reducing expenses.
Another key feature of is that it's allowed to reinvest dividends in the components of the S&P 500 until it is required to make a distribution to shareholders.
For regular investors who don't require mountains of liquidity for huge trades, ' lower expense ratio makes it a very attractive . Its ability to reinvest dividends is also an attractive feature for investors who want to be fully deployed and limit balances in their accounts.
Vanguard S&P 500
The smallest of the group, the Vanguard S&P 500 volume of 1.2 million.has an average daily
Vanguard is a market leader in low-costproducts, and that philosophy shows up in this , boasting the lowest expense ratio of the group at just .05%.
With the average expense ratio of a mutual fund clocking in at more than 1%, a low-costwith an expense ratio of just .05% provides big benefits to investors. For a $1 million account, reducing fees by 1% annually saves $10,000. That $10,000 compounded for 30 years and returning just 4% annually would grow into $615,717.
Not only is Vanguard the lowest-coston the list, its structure has the potential to .
Redemption request from various groups of shareholders gives Vanguard the option of selling high cost-basis securities to capital gains.
The Vanguard S&P 500 is a great option for investors focused on lowering costs and reducing fees. It also offers potential benefits for investors who want an opportunity to capital gains and reduce tax liability.
The Answer: Buying an S&P 500 is both easy and inexpensive. Unlike mutual funds, ETFs are and can be bought directly through an exchange. They are also less expensive to purchase than mutual funds, which are usually $50 to buy or sell and sometimes carry front and back-end loads. But as , ETFs carry a low that is usually in line with executing a stock transaction.