S&P 500 ETFs: 7 Ways to Play the Index

SPDR S&P 500 ETF Trust

• Assets under management: $551.6 billion
• Expenses: 0.095%, or $9.50 annually on every $10,000 invested
• Dividend yield: 1.2%

The SPDR S&P 500 ETF Trust (SPY) is not just the biggest S&P 500 ETF — it's the largest exchange-traded fund period. It's also the first U.S.-listed ETF, launched at the beginning of 1993.

This ETF has more than $550 billion in assets under management (AUM) at present and has long been the most liquid and popular vehicle to play the U.S. stock market.

But while SPY is quite popular, it's certainly not the lowest-cost ETF that tracks the S&P 500 on the market, with a gross expense ratio of 0.095%. That's three times as much as some of the S&P 500 ETFs on this list. 

So, why do some investors choose to pay more?

Well, for starters, 0.095% adds up to a mere $9.50 a year on every $10,000 invested, so that's not exactly breaking the bank. Furthermore, SPY continues to be the go-to vehicle for large institutional traders who are looking to put on big positions. And in these circles, the liquidity risk that comes with trading a product that doesn't have as much volume is a much bigger concern than a small difference in annual fees.

Of course, if you're not a Wall Street titan, then you have different priorities. In other words, SPY might not be the perfect solution for buy-and-hold investors.

Learn more about SPY at the SPDR provider site.

iShares Core S&P 500 ETF

• Assets under management: $510.7 billion
• Expenses: 0.03%
• Dividend yield: 1.3%

The iShares Core S&P 500 ETF (IVV) was launched in 2000 by the iShares family of funds run by asset management giant BlackRock (BLK). IVV is large and liquid like SPY, with more than $494 billion in assets under management to make it one of the top ETFs of any flavor. But it also boasts a bargain-basement 0.03% expense ratio, making it one of Kiplinger's favorite cheap ETFs.

As with its peers, holdings and overall performance are the same. That performance has been stellar since the March 2020 lows, by the way. On a total return basis (price plus dividends), IVV is up 165% since March 23, 2020, and it has gained 22% over the past 12 months.

For comparison's sake, the tighter 30-stock portfolio of the Dow Jones Industrial Average has produced a 150% return since the 2020 bottom and is up 20% in the past year.

Learn more about IVV at the iShares provider site.

Invesco S&P 500 Equal Weight ETF

• Assets under management: $61.9 billion
• Expenses: 0.20%
• Dividend yield: 1.5%

While a relatively simple and effective index of domestic stocks, the S&P 500 is not without its drawbacks. Perhaps the most obvious is that it is weighted by market capitalization, meaning the biggest stocks make up the biggest share of the index.

Specifically, right now, roughly 33% of the S&P 500's weight is concentrated in its top 10 holdings. And since those holdings are predominantly large U.S. tech stocks, you won't be surprised to find that the sector is over-represented: S&P 500 ETFs like SPY allocate more than 31% of their assets to tech stocks at present. Financials and healthcare stocks makes up another 23% approximately. On the other hand, materials, real estate and utility stocks each make up fewer than 3% of the index's weight.

Many investors may already have a significant stake in technology companies either through owning individual stocks or other tech-heavy funds. Similarly, some investors might want more exposure to defensive sectors such as consumer staples.

Whatever your needs, if the S&P 500's lopsided constitution isn't for you, consider the Invesco S&P 500 Equal Weight ETF (RSP) as an alternative.

The RSP equally weights every stock in the S&P 500, then rebalances every quarter to ensure a fairly equal distribution of weight across all 500 companies it holds. That means at the start of any given quarter, $3.3 trillion Apple (AAPL) would have the same impact on the fund as $9.5 billion flooring company Mohawk Industries (MHK), which would round out the bottom of traditional S&P 500 ETFs.

This doesn't mean you'll get a perfect sector balance, however. While each stock is equally weighted, the S&P 500 holds different numbers of stocks from different sectors. At the moment, information technology is the largest sliver of RSP — but at just over 15% of assets. Meanwhile, the smallest weightings go to communication services and basic materials at about 4% each.

The Invesco S&P 500 Equal Weight ETF is well established at nearly $62 billion in assets. And the RSP has held its own against the broad market in recent years, up 160% on a total-return basis since the March 2020 bottom. Just note that, at 0.20% in annual expenses, it's pricier than the plain-vanilla S&P 500 ETFs.

Learn more about RSP at the Invesco provider site.

SPDR Portfolio S&P 500 ETF

• Assets under management: $43.4 billion
• Expenses: 0.02%
• Dividend yield: 1.3%

In 2019, State Street Global Advisors recognized the difference between institutional traders and smaller "retail" investors – and recognized some investors' preference for SPY's lower-cost competitors – by offering a look-alike S&P 500 fund. It converted an existing large-cap ETF into the SPDR Portfolio S&P 500 ETF (SPLG).

The big difference — aside from the fact that assets under management total "just" $43 billion — is that the fee is much less than SPY's at 0.02% annually, or a measly $2 per year on every $10,000 invested.

The holdings are exactly the same and in exactly the same proportion – 503 stocks representing 500 of the largest U.S.-listed companies, which collectively represent about 80% of domestic market capitalization. Leading positions are just the same, too, which at the moment includes Microsoft (MSFT, 7.2%) Apple (AAPL, 6.6% of assets), and Amazon.com (AMZN, 3.8%).

The modest savings in fees may add up over years or decades if you're planning on holding this S&P 500 ETF for the very long-term. That could make SPLG more attractive to traditional investors than its larger sister fund.

Learn more about SPLG at the SPDR provider site.

ProShares Short S&P500

• Assets under management: $948.1 million
• Expenses: 0.88%
• Dividend yield: 6.6%

Among the more interesting ways to play the popular stock index is to the downside via a "short" fund.

The ProShares Short S&P500 (SH) seeks to deliver the opposite return (minus fees) of the S&P 500 Index. In other words, if the S&P 500 declines 1% in a day, SH should actually gain 1% and vice versa.

The stock market almost always trends higher in the long term. And given the relatively positive environment for U.S. equities at present, you might think a bearish bet such as ProShares' ETF is quite foolish. On top of that, the losses you'd incur during a positive run for the S&P 500 would be compounded by SH's significant costs of 0.88% annually.

So who in the world would buy this inverse ETF?

Well, speculators betting against a short-term decline might. Consider how, from March 1 to March 20, 2020, SH surged more than 21% in short order while the S&P 500 fell by roughly the same amount. It's also important to note that SH has big purposes for institutional or sophisticated traders looking to put on a hedge against declines. For these investors, this short S&P 500 ETF is more of an insurance policy than a profit vehicle.

These factors might not make ProShares Short S&P500 right for everyone. Indeed, most buy-and-hold investors are better off leaving inverse funds alone. But SH remains an important tool to tactical investors and traders and boasts nearly $1 billion in AUM as a result.

Learn more about SH at the ProShares provider site.

Vanguard S&P 500 ETF

• Assets under management: $498.0 billion
• Expenses: 0.03%
• Dividend yield: 1.3%

We're returning our focus to "vanilla" S&P 500 ETFs with the Vanguard S&P 500 ETF (VOO). It's smaller than the previously mentioned IVV and SPY at $498 billion in assets, but if you roll in the look-alike Vanguard mutual fund, you get closer to $1.2 trillion in AUM in this specific S&P 500 strategy.

The exchange-traded VOO is relatively young, launching in 2010 in what seems like a very late entrance onto the ETF scene. However, many investors know Vanguard and its iconic founder Jack Bogle as pioneers of "passive" investment strategies that use fixed indexes to power their funds. That's exactly what VOO is, and it builds on this tradition.

As is its fashion, Vanguard ensures to pass on the savings from this simple investment strategy via a low-cost structure for investors. VOO also provides a dirt-cheap 0.03% expense ratio. Thus, Vanguard account holders don't even have to look outside the family to gain easy, inexpensive access to this major market index.

Learn more about VOO at the Vanguard provider site.

Direxion Daily S&P 500 Bull 3x Shares ETF

• Assets under management: $4.2 billion
• Expenses: 0.91%*
• Dividend yield: 0.8%

ETFs and other exchange-traded products (ETPs) are wildly popular among smaller investors in part because they provide easy access to investments that used to be too complex or costly.

However, the universe of ETPs out there operates under the same principles as anything on Wall Street. Two of those ideas are particularly important to call out before we discuss our next S&P 500 ETF:

1. You shouldn't chase the crowd and should only invest based on your personal means and goals.
2. You should never invest in any product unless you fully understand what you are getting into.

Disclaimers out of the way, let's talk about the Direxion Daily S&P 500 Bull 3x Shares ETF (SPXL).

As the "3x" in the name indicates, this is a "leveraged" fund that seeks to deliver three times the daily performance of the S&P 500 Index (before its rather substantial fees, of course).

This strategy is attractive to some aggressive investors, and for good reason. SPXL surged more than 700% from the March 2020 bear-market bottom through the start of 2022 — significantly outperforming the broader index, because while Direxion's ETF aims to triple the index's daily movement, longer-term performance can vary greatly in either direction.

But it should go without saying that while SPXL can generate outsized profits when things go well, you can lose just as much when the S&P 500 goes south. And at a hefty 0.91% in fees, or $91 annually on every $10,000 invested, costs can hold back performance over the very long term, too.

We can't stress enough that leveraged funds such as SPXL are not meant for most individual investors who are primarily investing with an eye toward retirement. They are meant for highly experienced tactical investors and day traders … and even then, they should be purchased in modest amounts.

* Includes 0.03% in acquired fund fees and other expenses

Learn more about SPXL at the Direxion provider site.

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