S&P 500 Hits New All-Time Highs: 3 S&P 500 ETFs to Watch

The reigning king

The SPDR S&P 500 ETF Trust (SPY) remains at the forefront of S&P 500 ETFs, boasting an impressive $478 billion in assets under management (AUM).

Remarkably, this ETF celebrated its 31st anniversary on January 22, 2024, coinciding with the day the S&P 500 index reached its recent all-time high.

Several factors contribute to the enduring popularity of SPY. One significant advantage is its status as the first ETF of its kind, giving it a first-mover advantage that has translated into strong brand name recognition over the years.

Additionally, SPY is known for its very high trading volume and low bid-ask spread, making it an attractive option for both individual and institutional investors. Its liquidity is a major draw, as it allows investors to enter and exit positions with minimal impact on the price.

Another appealing aspect of SPY is its extensive options chain, which offers a wide range of strike prices and expiry dates. This versatility makes SPY not only a staple for those looking to invest directly in the S&P 500 but also a popular instrument for various trading strategies.

The expense ratio of SPY is 0.095%, which, considering its benefits in terms of liquidity, brand recognition, and trading flexibility, offers good value for investors seeking exposure to the S&P 500.

The budget option

The SPDR Portfolio S&P 500 ETF (SPLG) represents State Street's competitive response to the lower-cost S&P 500 ETFs introduced by Vanguard and iShares over the years.

In a move to stay competitive and appealing to cost-conscious investors, SPLG offers an even lower expense ratio of 0.03%. This means for a $10,000 investment in SPLG, the annual fees amount to a mere $3.

Designed as a core portfolio building block, SPLG offers an accessible price point, trading at around $57 per share, in contrast to SPY, which trades at around $484 per share at the time of writing.

This lower per-share price can be more appealing to individual investors, especially those starting with smaller investment amounts, looking to implement dollar-cost averaging strategies, or don’t have fractional trading with a brokerage.

Due to its lower price and expense ratio, SPLG has garnered significant investor interest, amassing $27 billion in assets under management.

The contrarian play

Being a market-cap-weighted index, the S&P 500 tends to be top-heavy. Currently, the top 10 holdings alone account for about 30% of the index's total weight, with the technology sector representing around 29%. This concentration can skew the index's performance towards these top holdings.

For investors looking to make a contrarian bet against this market-cap-weighted approach, the Invesco S&P 500 Equal Weight ETF (RSP) presents an interesting alternative.

RSP diverges from the typical weighting methodology by allocating an equal weight of 0.2% to each stock in the S&P 500 at every quarterly rebalance. This strategy ensures a more balanced representation of all 500 companies, regardless of their size.

It's important to note that RSP has lagged behind SPY in terms of performance, particularly in the past year. While SPY returned 26.19%, RSP posted a return of 13.7%.

This difference in performance highlights the impact of the weighting strategy on the ETF's returns, especially in a market environment where the largest companies have been driving the index's gains.

However, this strategy comes at a cost, with RSP having a higher expense ratio of 0.20% and potentially higher turnover due to its quarterly rebalancing.

For investors who are comfortable with these aspects and are looking for a way to counterbalance the market-cap-weighted nature of most S&P 500 funds, RSP is certainly an ETF to watch.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.