E Why Investors Should Avoid Buying SPY And GLD

I'll try to make this short and sweet. If you are an investor, do not buy SPY to access exposure to the S&P 500 and most definitely do not buy GLD to access gold. This is a true event though most SPDR ETFs from State Street Global Advisors have the most AUM in their respective categories by far.

The simple fact is that there are more advantageous alternatives to gain access to both targets. Hedge fund traders who use these instruments both long and short can fee free to ignore the rest of this column. Everyone else should investigate my recommendations because I believe it applies universally to all US investors.

Two better alternatives for wealth accumulation to access S&P 500 are IVV offered by Blackrock iShares and Vanguard's VOO. As always, I recommend downloading the ETF Fact Sheets and summary prospecti for yourself. There you will find the following major differences between SPY and both IVV and VOO:

1. The annualized total returns are lower for SPY by about 12 basis points (0.12%) per year in each time frame. 
2, The expense ratio is 0.095% as compared with 0.03% for IVV & VOO; meaning that about 6-1/2 bp of the difference comes from the fee differential and 5-1/2 bp from the structural differences and management skills of the Blackrock and Vanguard teams.

ETF 1-Year Ann. Tot. Ret. 3-Year Ann. Tot. Ret. 5-Year Ann. Tot. Ret. 10-Year Ann. Tot. Ret.
SPY 18.23% 14.02% 16.04% 13.74%
IVV 18.35%  14.14% 15.18% 13.85%
VOO 18.35%  14.14% 15.18% 13.85%

This table of annualized returns for 1- 3- 5- and 10-year periods ending 12/31/2020:

SPY has the most AUM at about $400 Billion at 2020 yearend as opposed to $230 Billion for IVV and $177 Billion for VOO but certainly, all three are huge enough for most investors. 

The argument for SPY most frequently advanced is that it has by far and away from the highest daily dollar trading volume and the shortest interest. Hedge funds that trade daily find the differences just discussed irrelevant. They need to make their trades without moving the market price so they may well be better served by SPY. However, as ETF.com just documented stealth trades in both IVV and VOO using very large sizes of redemptions and creations, presumably for tax-related purposes, there is more than enough liquidity in each for almost all other purposes. Since most investors can use discount brokers to trade without fee charges and will certainly not impact the market with their trades, my advice is to buy IVV and VOO, not SPY. 

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Comments

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James Sinclair 2 days ago Member's comment

Good advice.

Andrew Armstrong 1 week ago Member's comment

Good read, thanks.

Herbert Blank 1 week ago Author's comment

Thank you very much for your comment Andrew Armstrong

Vivian Lewis 1 week ago Contributor's comment

welcome to the blogosphere Herb