U.S. Markets closed

Cheap Fees, Tight Spreads Help Vanguard S&P 500 ETF


A Vanguard exchange traded fund is picking up interest as a low-cost fund option to track the S&P 500, with one wealth management firm also pointing to diminishing implicit costs associated to the bid-ask spread.

Bestinvest is recommending its clients to take a look at the Vanguard S&P 500 ETF (VOO) as the ETF option for exposure to the S&P 500, reports Matthew Jeynes for FTAdviser. [ETF Chart of the Day: S&P 500]

“For internal and external costs, we found the Vanguard ETF to be very attractive compared to other available funds, with a low on-going cost (net of withholding tax),” Ben Seager-Scott, senior research analyst at Bestinvest, said in the article.

VOO is the cheapest S&P 500 ETF at 0.05%, comapared to the iShares Core S&P 500 Index ETF (IVV) , which has a 0.07% expense ratio, and the SPDR S&P 500 ETF (NYSEArca; SPY) , which has a 0.0945% expense ratio. [ETF Options to Track the S&P 500]

Moreover, Vanguard recently executed a 1-for-2 reverse split on VOO as a way to diminish implicit costs of trading the fund through tightening its bid-ask spread. [Vanguard Opens Up ‘New Front’ in ETF Fee War]

“We have every reason to expect this spread will continue to tighten as this fund continues to attract fresh interest,” Seager-Scott added. “As a result, we believe this fund is now considerably better placed than rivals who have previously relied on this liquidity gap to charge a premium.”

Morningstar analyst Michael Rawson, though, warns that VOO “has slightly higher market-impact costs because of lower trading volumes.”

SPY has a bid-ask spread of 0.01%, and shows an average 128.9 million daily average  volume, according to Morningstar data. IVV has a 0.01% bid-ask spread and a 4.2 million daily average volume. VOO has a 0.03% bid-ask spread and a 1.5 million daily average volume.

For more information on the S&P 500, visit our S&P 500 category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own SPY.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.