[Editor’s note: Join our experts at our free webinar this Thursday, April 2, to see how the new ETF Comparison Tool makes the job of picking the right ETF easier than ever.]
Choosing and looking for the right ETF may seem overwhelming, especially during this high volatility environment.
The good news is that with more than 2,200 ETFs trading in the U.S. markets, it is likely you can find an ETF that best adjusts to your clients’ risk-and-return profile.
Nonetheless, your research and expertise are key to picking the right ETF, and we are here to help you. That is the reason we built ETF.com, and developed our fund reports and ETF analytics tools. Now we are proud to announce our newest addition, the ETF Comparison tool.
Comparing 2 ETFs
Now, you can compare and contrast two ETFs’ main features against each other, in a simple, intuitive and smart tool (click here for ETF.com’s Comparison Tool).
Let’s go over each of the tool’s features using two U.S. large cap ETFs as an example. We will compare the most popular U.S. ETF, the SPDR S&P 500 ETF Trust (SPY) against FactSet’s analyst pick ETF for the U.S. large cap segment, the Vanguard Mega Cap ETF (MGC).
You can also find it under our ETF tools and Data on the main navigation menu, as shown in the image below:
Once you are inside the comparison tool, you can add any two ETF tickers into the two search boxes. If you don’t remember the fund name, our autocomplete feature will help you look for the ETF you want to search, as seen below. As mentioned earlier, we will use SPY and MGC for this exercise.
ETF Facts & Costs
As soon as you select the second ticker, you will see a tool navigation menu and the “ETF Facts” table.
The navigation menu is divided into six sections: ETF Facts, Costs, Performance, Portfolio, Factors and ESG Metrics. The ETF Facts section provides a quick summary comparison between two ETF.
Continuing with our example of SPY versus MGC, you can see where both funds last traded prices and their respective issuers. You will also see here that MGC has a lower expense ratio (0.07%) than SPY’s 0.09%, but we’ll still take a closer look at costs.
SPY is definitely bigger, with $243.24 billion in assets. Finally, in a major difference in the number of holdings between the two, MGC’s portfolio holds 262 securities aiming to track the CRSP US Mega Cap Index, targeting inclusion of U.S. companies in the top 70% of investable market capitalization, versus SPY’s objective of tracking the well-known S&P 500 Index.
There are several implicit and implied costs when trading and holding an ETF. All these costs need to be taken into account.
Going back to our example, SPY’s status as a trading vehicle is reaffirmed when looking at the lower trading metrics, once-cent average market spread (bid/ask difference) in the last 45 trading days, versus MGC’s three-cent average spread.
Yet MGC has a lower expense ratio and lower median tracking difference than SPY, which may be attractive to investors with a longer time horizon. Both funds have a similar capital gains tax treatment, even though their legal structure is different. SPY is constituted as a unit investment trust, while MGC is registered as an open-end investment company.
Turning to the performance section, you can see an overlay chart of the one-year total return performance for SPY and MGC. Besides the chart, there is a table with the trailing total returns for several time periods. The table shows performance values as of March 26, 2020. During the last 10 years, MGC has outperformed SPY by a 0.35% annualized rate.
Let’s take a closer look at each fund’s portfolio breakdown and factors weighting to understand MGC outperformance.
Portfolio & Factors Weighting
The portfolio section of the tool lets you do a head-to-head comparison of each ETF sector breakdown as well as top 10 holdings.
In the case of SPY and MGC, because both funds track market-cap indexes, they share the same top 10 holdings. Nevertheless, MGC tilt toward mega-cap companies increases the top 10 constituent concentration to a 27.15% weighting, compared to a 25.23% weighting in SPY.
Using the MSCI factors data, we see that the only major difference is MGC’s tendency to overweight larger cap companies as indicated in its fund mandate. We can infer from these data points that, during the last 10 years, MGC has benefited from its overweight in tech giants companies such as APPL, MSFT, and AMZN.
Finally, we list a series of ESG metrics provided by MSCI ESG Research. In the case of SPY and MGC, they have similar MSCI ESG Quality scores—5.72 and 5.74 (out of 10)—with an “A” MSCI ESG Rating. Still, MGC’s weighted average carbon intensity is lower than SPY’s, due to the fact that MGC underweights energy and basic material sectors in contrast to SPY.
We expect that this exciting new tool will help you as investors, and assist your clients. As always, the tool is free to all of our readers, and if you are interested in further investment research, our individual fund reports feature additional helpful editorial content (example: www.etf.com/SPY).
Lastly, please send your comments to us at [email protected]. We rely on your feedback to improve and enhance our tools.
Luis Guerra can be reached at [email protected]