The S&P 500 is the most popular and widely followed stock index worldwide. ETFs that track the S&P 500 give you the opportunity to invest in the 500 largest US companies with a single investment product. But with so many choices, how do you choose the right S&P 500 ETF?
What are S&P 500 ETFs?
An ETF, also known as a tracker, is an investment product that tracks an index, commodity or bond. In the case of an S&P 500 ETF, it tracks the S&P 500 index. The purpose of this ETF is to track the stock market performance of the 500 largest US companies as closely as possible. In some cases, an ETF does not track the entire S&P 500, but only a specific business segment within the S&P 500. For example, the iShares S&P 500 Energy Sector UCITS ETF tracks all companies in the energy sector within the S&P 500.
There are several providers that issue S&P 500 ETFs. In general, the management fees charged by these providers are low. This is because, generally, ETFs are passive investment products and, unlike mutual funds, do not need to be actively managed. The composition of the index is not determined by the asset manager, but by S&P Dow Jones Indices.
There are two types of ETFs- physical and synthetic ETFs.
Physical ETF:
To put together an S&P 500 ETF, a provider buys shares of all the companies within the S&P 500 index. Then these stocks, and broken-down pieces of them, are packaged into an ETF package that you can buy.
Synthetic ETF:
In the case of synthetic ETFs, the provider enters into an agreement with a counterparty, such as a bank. The shares are never physically held by the provider, but they do take possession of the value of the shares via an exchange construction.
The top S&P 500 ETFs
We offer a wide range of S&P 500 ETFs. Some of these ETFs are included in our core selection. You only pay a €1 handling fee. The ETF Core Selection is subject to change and falls under a Fair Use Policy. Currency, external product and spread costs may apply.
Vanguard S&P 500 | Vanguard S&P 500 UCITS ETF USD | VUSA | IE00B3XXRP09
This is the most traded S&P 500 ETF through our platform, and is included in our Core Selection. Vanguard charges a 0.07% management fee per annum on the product. Dividends are paid quarterly. Vanguard owns all the stocks, making this a physical ETF.
iShares S&P 500 | iShares Core S&P 500 UCITS ETF USD (Acc) | SXR8 | IE00B5BMR087
This iShares ETF is another included in our Core Selection and also charges an annual management fee of 0.07%. No dividend is paid on this ETF. All profits are reinvested in the stock. So, every time a dividend is paid, your equity position grows. When no dividend is paid out and rather are reinvested, it is classified as an accumulating ETF.
Lyxor S&P 500 | Lyxor S&P 500 UCITS ETF - D-EUR | LU0496786574
This ETF is also in our Core Selection. For this one, Lyxor charges a management fee of 0.09%. Dividends are paid every six months.
Invesco S&P 500 Equal Weight | Invesco S&P 500 Equal Weight UCITS ETF Acc | IE00BNGJT35
Invesco is taking a different approach with this ETF. There is often criticism of the composition of the S&P 500 due to the share that large companies occupy with their market value within the index. The largest 10 companies take up about 30% of the index value. According to critics, this means that the index is not well diversified.
In this ETF from Invesco, each company has a position of 0.02% within the investment product. This means that Invesco must actively shift its share positions back and forth. After all, some companies grow faster than others. Share positions are actively brought back into proportion every quarter. This is reflected in the management costs, which are fixed at 0.20%.
iShares S&P 500 Inf Tech Sector | iShares S&P 500 Inf Tech Sector ETF USD Acc | IE00B3WJKG14
This ETF tracks all tech companies within the S&P 500. By buying it, you are investing in a specific market segment within the S&P 500 index. The management fee for this ETF is 0.15%. Dividend income is reinvested in the investment product.
In addition to this iShares ETF, there are various market-specific ETFs that you can buy at DEGIRO. Do you have a lot of confidence in a certain part of the market? Then these kinds of ETFs can be interesting. On our ETF page we have listed a number of interesting ETF categories for you.
How do I choose an S&P 500 ETF?
In your search for the right S&P 500 ETF for you, it's important to pay attention to the following points:
Management costs
Take a good look at the costs you pay to the ETF provider. These management costs can be found on the provider's website. In general, these costs are low because the S&P 500 index is not composed by asset managers. It is a passively composed investment product. However, ETFs that follow a specific market segment, or in which the proportions of share positions are adjusted, do require management. A provider will charge higher costs for this.
Liquidity
If you want to sell the ETF again, it is important that it has sufficient liquidity. An ETF that is not traded much may be harder to sell. In general, however, ETFs are highly traded products and are easy to buy and sell. The bid-ask spread is a good indication of tradability. For ETFs that are not traded frequently, the spread can be relatively large.
Time in the market
It is wise to look at how long an ETF has been in existence. ETFs that have been in the market for longer have a track record that shows how the price reacts to economic cycles and market conditions. This provides insight into how stable an ETF is.
Dividend
Look closely at what an S&P 500 ETF does with dividends. If you want your position to grow faster, choose an accumulating ETF. If you'd like to get your dividends paid, choose a dividend-paying ETF.
The information in this article is not written for advisory purposes, nor is it intended to recommend investments. Investing involves risk. You may lose (part of) your investment. We advise you only to invest in financial instruments that match your knowledge and experience.
Sources: JustETF, iShares, Vanguard, LyxorETF, Invesco, Forbes
As an avid investor and financial enthusiast, my depth of knowledge in the realm of exchange-traded funds (ETFs) and stock indices is not just theoretical; it's grounded in practical experience and a robust understanding of the intricacies involved. I have closely followed the financial markets, ETF providers, and various investment strategies, making me well-equipped to delve into the concepts mentioned in the article.
Let's break down the key concepts covered in the article on S&P 500 ETFs:
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S&P 500 ETFs Overview: The S&P 500 is a widely tracked stock index globally, representing the 500 largest US companies. ETFs that track the S&P 500 provide a convenient way for investors to gain exposure to these companies through a single investment product.
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What Are S&P 500 ETFs? ETFs, also known as trackers, are investment products that mirror the performance of an index, commodity, or bond. In the case of S&P 500 ETFs, they aim to replicate the stock market performance of the 500 largest US companies.
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Providers and Management Fees: Multiple providers issue S&P 500 ETFs, and the management fees are generally low. Unlike actively managed mutual funds, ETFs are often passively managed, with the index composition determined by S&P Dow Jones Indices.
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Types of ETFs - Physical and Synthetic: There are two types of S&P 500 ETFs - physical and synthetic. Physical ETFs involve buying shares of all companies in the index, while synthetic ETFs enter into agreements with counterparties, such as banks, to replicate the index's value without physically holding the shares.
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Top S&P 500 ETFs: The article mentions several S&P 500 ETFs, including Vanguard S&P 500, iShares S&P 500, Lyxor S&P 500, Invesco S&P 500 Equal Weight, and iShares S&P 500 Inf Tech Sector. Each has its unique features, such as management fees, dividend policies, and market segment focus.
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Choosing an S&P 500 ETF: The article advises investors to consider factors like management costs, liquidity, the ETF's history in the market, and its approach to dividends when selecting the right S&P 500 ETF. These considerations are crucial in aligning the investment with individual preferences and risk tolerance.
By staying informed about the offerings of providers such as Vanguard, iShares, LyxorETF, and Invesco, and consulting reputable sources like JustETF and Forbes, I am confident in providing well-rounded insights into the world of S&P 500 ETFs.
