Which S&P 500 ETF should I pick?

justETF lists 14 S&P 500 ETFs. Which one should you choose? How do you decide which fund is more appropriate when all track the same index?

When faced with choices between comparable alternatives I prefer to use defined criteria to guide my decision making. In this case I think the important criteria is (in this order): use of profit, TER, fund size, fund provider, replication type.

Use of profit

Do you need an accumulating or distributing fund? There are 8 distributing S&P 500 ETFs and 6 accumulating S&P500 ETFs. This criteria cuts the choices by half.

TER

By reducing your costs you can increase your returns. If you sort by TER you will notice five potential values of TER:

  • 0.05%
  • 0.07%
  • 0.09%
  • 0.12%
  • 0.15%

I would be tempted to exclude the ETFs with the highest TERs (>= 0.09%) unless they have something special about them (e.g. reputation of the provider, domicile, etc) .

Fund size

I use this as an indication of the trust investors have put into the fund. If you sort by fund size you will notice that the three biggest funds are:

  • iShares Core S&P 500 (Acc) – 26,592 m €
  • Vanguard S&P 500 – 19,294 m €
  • iShares Core S&P 500 (Dist) – 7,027 m €

Fund provider

This criteria is akin to trying to understand which bank institution is more trustworthy. It is a subjective choice made out of incomplete information. I personally have a preference for Vanguard funds due to Jack Bogle’s work there and their overwhelming presence on personal finance books. I also tend to trust iShares ETFs because iShares is the biggest ETF company in the World and it has a broad set of offerings.

Generally if all else is equal, I will pick a Vanguard or iShares ETF. I think the other providers may be good too they are just less popular.

Replication type

Similarly to my “Vanguard” or “iShares” bias. I also have a bias towards physical replication funds because:

  • It is a type of replication I understand better
  • Synthetic replication involves using swaps/derivatives which means the funds are exposed to counterparts risk
  • Synthetic replication is getting less popular
  • Whenever there are synthetic fund available, I always find comparable physical replication funds which are similar or better according to my decision criteria.

Therefore, all else being equal I tend to prefer physical replication funds.