SPDR S&P 500 ETF Trust (Freshly sampled: spy) Will always have a special place in the history of Wall Street. That’s because the listed fund (ETF) was the first of its kind. But the ETF market has changed dramatically over the years and today investors can easily do better than SPDR Pioneering ETF.
This is why – and a look at some of the more attractive alternatives.
Without going into the details of the reason why listed funds were such an innovative investment tool, you can easily explain what this SPDR ETF does. It buys the shares in the S&P 500 index (Snpindex: ^GSPC). An index fund is not unique and it was not unique when the ETF was introduced into the world. What was different was the ability to trade through SPDR S&P 500 ETF Trust throughout the day.
In contrast to index -based investment funds, which have been around for years, ETFs act just like shares. That considerably increases the flexibility that investors have with their portfolios. And it also opens all kinds of other investment tactics, such as discount and options strategies, around the ETF. In this way SPDR S&P 500 ETF Trust represented a revolutionary change for Wall Street.
But in the core, SPDR S&P 500 ETF Trust is still just an index fund that follows the S&P 500 index. On an absolute basis it remains a fairly cheap way to do that with a cost ratio of only 0.09%. On a relative basis, however, that is actually a bit expensive today.
The low costs offered by listed funds have attracted a large number of investors. Because many ETFs do nothing more than following similar indexes, one of the best ways to distinguish an ETF by offering lower costs. This has resulted in a race to lower cost ratio-qua ratio with regard to generally followed indexes. The S&P 500 Index is perhaps the most followed index in the world, and there are many different choices for investors if they want to invest in it.
For example, Vanguard S&P 500 ETF (Nysemkt: flight) Also follows the S&P 500 index, but the cost ratio is 0.03%. That is the same amount that you pay to own Ishares Core S&P 500 ETF (New Simple: IVV)Another S&P 500 index tracker. And even Vanguard 500 Index FundA traditional investment fund, has a lower cost ratio than SPDR S&P 500 ETF Trust, with 0.04%.
Given the ordinary vanilla approach of SPDR S&P 500 ETF Trust, the cost ratio of the ETF is extremely high compared to comparable products. And that means that there is no particularly good reason to buy it. Unless you feel that there is some cache to say that you pay too much to own the first ETF ever, you probably have to look somewhere else if you want a fund to follow the S&P 500 index.
