You’re In The Wrong Large Cap ETF

August 27, 2014

With the S&P 500 topping 2,000, it’s worth understanding how you ended up in the wrong large-cap ETF.

First, I’ll admit that the title here is a bit tongue in cheek. ETFs purporting to provide core large-cap U.S. equity exposure account for more than $363 billion of ETFs—a huge chunk of the entire ETF market. But as you might expect, even though there are 67 ETFs in the segment, most of the assets are in the top 10—and really, in one fund:

Fund Name Symbol Expense Ratio AUM
SPDR S&P 500 SPY 0.09% $171,552,111,917
iShares Core S&P 500 IVV 0.07% $60,756,395,000
PowerShares QQQ QQQ 0.20% $46,271,767,500
Vanguard S&P 500 VOO 0.05% $21,364,747,800
SPDR Dow Jones Industrial Average Trust DIA 0.17% $11,224,325,777
iShares Russell 1000 IWB 0.15% $9,795,871,000
Guggenheim S&P 500 Equal Weight RSP 0.40% $8,554,424,280
Vanguard Large-Cap VV 0.09% $5,241,077,520
PowerShares S&P 500 Low Volatility SPLV 0.25% $4,615,212,000
iShares S&P 100 OEF 0.20% $4,516,208,000

Yep: the SPDR S&P 500 (SPY | A-98). This is a surprise to exactly nobody, and the best example of first-mover advantage I’ve read outside of a Tom Peters book. Going down this list, there are a lot of choices here.

You have three flavors of plain-vanilla S&P 500 exposure, with expense ratios ranging from just 5 basis points with the Vanguard S&P 500 ETF (VOO | A-96) to SPY at 9 bps. You’ve got some old-guard, slightly wacky ETFs like the PowerShares QQQ (QQQ | A-45) and the SPDR Dow Jones Industrial Average (DIA | A-73), and then you’ve got different takes on skinning the large-cap cat, with different weighting schemes, smaller or larger selection universes, and even the low-vol play.

By any rational standards, these are all fantastic ETFs. They’re cheap, they trade like water and they deliver on their promise to investors.

But that doesn’t make them identical, and it doesn’t mean that they’re interchangeable, and all too often, I think investors simply fish from the top of this list because it’s easy.


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