Legal disclaimer: I am not a financial/ investment advisor. The advice here given is not a financial advice and this is just for informational purpose only. Please contact a licensed investment advisor for investment advice.
What is an ETF?
Exchange Traded Funds (ETF) is similar to Mutual Funds in that they hold basket of securities (such as stocks and bonds). Based on your requirement and risk level, it can offer investment opportunity in a particular sector (E.g. Technology, Consumer Cyclical, Communication Services etc.) or in particular region (E.g. European or Asian markets) or a whole underlying stock index (like S&P 500 or Dow Jones).
Purchasing a stock allows you to invest in that particular company but purchasing an ETF allows you to invest in several businesses at the same time. Just like a stock, ETF also trades on stock exchange and each unit of the ETF can be bought and sold by individual or institutional investors.
One of the primary difference between ETF and Mutual fund is that ETFs are passively managed while most Mutual Funds are actively managed which means that Mutual Fund managers actively try to outperform the index (like S&P 500) to deliver higher returns.
S&P 500 Growth ETFs
If you want to learn more about the S&P 500 specific ETFs, then there is a good article from Dan Schmidt (Benzinga.com) “The Best S&P 500 ETFs”
Now lets compare the three ETFs across various parameters. Primarily note the Price, Avg. Trading Volume, Expense Ratio and Performance.
| ETF (as on Apr.9, 2020) | SPDR S&P 500 Growth | iShares S&P 500 Growth | Vanguard S&P 500 Growth |
| Ticker Symbol | SPYG | IVW | VOOG |
| Price | $38.24 | $176.71 | $157.78 |
| Bid-Ask Spread % | 4% | 3% | 1% |
| Avg. Trading Volume | 3,545,700 | 1,228,377 | 332,132 |
| Net Assets | $5.55B | $22.06B | $2.88B |
| Expense Ratio | 0.04% | 0.18% | 0.10% |
| Top 3 Sectors | |||
| Technology | 33.05% | 33.06% | 32.19% |
| Consumer Cyclical | 13.33% | 13.32% | 13.23% |
| Communications Services | 12.88% | 12.89% | 13.20% |
| All Others | 40.74% | 40.73% | 41.38% |
| Top 5 Stocks | |||
| Microsoft | 9.96% | 9.96% | 9.19% |
| Apple | 8.79% | 8.79% | 8.49% |
| Amazon | 6.72% | 6.72% | 5.83% |
| 3.32% | 3.32% | 3.44% | |
| Alphabet Class A | 2.88% | 2.88% | 2.98% |
| Performance | SPDR S&P 500 Growth | iShares S&P 500 Growth | Vanguard S&P 500 Growth |
| YTD Daily Total Return | -8.43% | -8.53% | -8.52% |
| 1-Year Daily Total Return | 3.07% | 2.88% | 2.98% |
| 3-year Daily Total Return | 12.11% | 11.97% | 12.02% |
As can be seen from the table above, the Top 3 sectors and the Top 5 stocks in each of these 3 ETFs are exactly same. Only the percentage mix varies a bit. This is no surprise as these funds are trying to mirror the S&P 500 index as closely as possible. Note also that these ETFs are Technology sector heavy.
Price per Unit: This does not matter much since all three ETFs deliver about the same % returns. So regardless of number of shares you get for your investment, the ultimate return would be the same. However, I favor SPDR ETF ($38.24) as if I have limited investment amount then in this current volatile market I can keep purchasing little by little at each dip. (Remember to trade through a platform that offers no transaction fees like Robinhood, Webull or Charles Schwab. I personally use Charles Schwab)
Bid-Ask spread: I am a little surprised to see SPDR ETF having higher bid-ask spread at 4% compared to others even through it has the highest avg. trading volume. In an ideal scenario you would want a lower bid-ask spread. (Bid is what Buyers are willing to pay and Ask is the price at which the Sellers is willing to sell)
Avg. Trading Volume: A higher trading volume is a good indicator of liquidity as it signifies there are sufficiently large enough buyers and sellers executing the trade so you can theoretically find buyer/ seller when you are wanting to execute your trade.
Expense Ratio: Expense ratio is the cost associated with managing and running the ETF. Generally ETFs have lower expense ratio compared to Mutual Funds as most often Mutual Fund employ fund manager and a team to actively generate higher returns than the index.
Among the three ETFs, SPDR has the least expense ratio of 0.04%, meaning that for every $100 invested, the cost associated would be 4 cents. The higher expense ratio eats into your investment/ profits.
Historical Performance: Since the ETF passively track the underlying security (like index or commodity) they rarely outperform the underlying index. But among these ETFs again SPDR offers slightly better returns over the 3-year period.
Conclusion:
ETFs provide you with the diversification required if you have the risk appetite of investing in stock market, but have neither the skill nor the time to invest and monitor individual stocks on a long term basis. A downside to diversification on the S&P 500 index is that it might not be suitable if you are interested in only few sectors or only a few company and not the whole index.
Among the three ETFs my preferred choice is SPDR S&P 500 Growth ETF (SPYG) owing to lower expense ratio and higher trading volume.
Kartik's Personal Finance & Travel Blog 