Which S&P 500 ETF Is Right For You?

Exchange traded fund investors have a number of ways to track the S&P 500 Index, but each option shows small differences that can produce different results.

For starters, the SPDR S&P 500 ETF (NYSEArca: SPY) is the largest ETF and the first U.S.-listed ETF to hit the market. With about 111.6 billion shares exchanging hands on average each day, SPY trades more than any other security, has the most liquid options market of any ETF and tight bid-ask spreads.

“SPY is the most heavily traded security in the world. This level of liquidity makes it very inexpensive to trade in large amounts, which is an attractive feature for traders and institutions with relatively short anticipated holding periods,” Ben Johnson, director of global ETF research for Morningstar, said in a research note.

Due to its robust liquidity, SPY is typically used by institutional investors as a substitute for S&P 500 futures contracts.

However, potential investor should be aware that SPY is structured as a unit investment trust and not a regulated investment company like other funds. Consequently, the structure prevents SPY from reinvesting dividends, holding securities that are not included in the index, like futures, or engaging in securities lending. Moreover, the ETF has a one-month lag between the ex-dividend date and the payment of its dividends.