Investors are big winners from price wars raging between ETF providers. That's especially true if you want to buy the S&P 500.
State Street last month cut the annual fee on its $19.9-billion-in-assets SPDR Portfolio S&P 500 ETF by a third to next to nothing at 0.02%. Just like that, this ETF is now 77% cheaper than the SPDR S&P 500 ETF — which used to be synonymous with the cheapest way to own the S&P 500.
State Street is pushing fees to new lows as it's now the cheapest ETF in Morningstar Direct's U.S. stock large-cap blend category with funds assets of more than $10 billion. But it's up to investors to determine how to take advantage of price cuts in what's often the most important and largest portions of their portfolios.
"For new investors looking for S&P 500 index exposure, the minuscule fee SPLG now charges is hard to pass up," said Todd Rosenbluth, head of research at Vetta Fi.
Pushing The Limits On ETF S&P 500 Fees
Annual fees on large-cap blend ETFs, like those that invest in the S&P 500, are rapidly approaching zero.
There's even one large-cap blend fund charging absolutely nothing: BNY Mellon US Large Cap Core Equity, says Morningstar Direct. The fund now has $1.7 billion in assets. It's important to note, though, that it's not an actual S&P 500 ETF fund. It adds a few filters to the U.S. large-cap universe, including eliminating 25% of stocks with the lowest trading liquidity. As such it holds less than 200 stocks, rather that the full 500.
And that's what makes SPDR Portfolio S&P 500's move so interesting. For the first time, you can own all the stocks in the S&P 500 for 0.02% without making any adjustments to the portfolio.
State Street's move is also a direct knock against the giants in the S&P 500 ETF game: Vanguard and Blackrock's iShares. Behemoth $353-billion-in-assets iShares Core S&P 500 is charging 0.03%. Vanguard's massive $334.4-billion-in-assets Vanguard S&P 500 is also at 0.03%.
"The portfolio is the same, so fee savings should win out," Rosenbluth said.
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Fees Matter With S&P 500 ETFs
S&P 500 ETFs are usually key parts of investors' portfolios and ones they hold a long time. That means even seemingly small fees can make a difference.
Take a $100,000 position, for instance. You'd pay just $20 a year in fees in the first year with SPDR Portfolio S&P 500. That's less than the $30 you'd pay with iShares Core S&P 500 and the $90 you'd pay with the SPDR S&P 500 ETF. Over time, though, those fees add up. If the ETF rises 10% a year on average, you'd pay $3,603 in total fees on the SPDR Portfolio S&P 500. But you'd end up paying $1,791 more with the iShares Core S&P 500 and $12,380 more with the SPDR S&P 500 ETF.
It's somewhat of a fine point, though. All these S&P 500 ETFs are miles cheaper than most mutual funds. The typical mutual fund charges 0.44% annually. Plunking your $100,000 investment in a mutual fund would end up costing you $72,667 over 30 years.
What To Do Now
Don't automatically dump your existing S&P 500 ETFs, though. Doing so could trigger a tax event that would erase any fee savings.
And it might be worth paying more for some specialized ETF. If you'd like more small- and midcap stock exposure, it might be worth paying 0.03% for the Vanguard Total Stock Market ETF.
"While expense ratio should not be the sole deciding factor when choosing an ETF, when the portfolio is identical it makes it easier," Rosenbluth said.
Cheapest U.S. Stock Large-Cap Blend Funds
Including S&P 500-tracking ETFs
| Name | Ticker | Expense ratio | Assets (in billions) |
|---|---|---|---|
| BNY Mellon US Large Cap Core Equity | 0.00% | $1.7 | |
| JPMorgan BetaBuilders US Equity | 0.02 | 2.3 | |
| SPDR Portfolio S&P 500 | 0.02 | 19.9 | |
| iShares Core S&P Total US Stock Mkt | 0.03 | 44.9 | |
| iShares Morningstar U.S. Equity | 0.03 | 0.8 | |
| iShares Core S&P 500 | 0.03 | 353.2 | |
| SPDR Port S&P 1500 Comps Stk Mkt | 0.03 | 6.7 | |
| Vanguard Total Stock Market | 0.03 | 315.4 | |
| Schwab US Broad Market | 0.03 | 23.0 | |
| Schwab US Large-Cap | 0.03 | 33.6 | |
| Vanguard S&P 500 | 0.03 | 334.4 | |
| Franklin US Equity Index | 0.03 | 0.8 |
