SPY and Its Cheaper Twin SPYM: A Cost Comparison of S&P 500 ETFs

The SPDR S&P 500 ETF Trust (SPY) is the most widely traded exchange-traded fund globally, but it is not the most economical way to invest in the S&P 500. State Street offers a similar fund, the SPDR Portfolio S&P 500 ETF (SPYM), which tracks the same index, holds the same stocks in identical weights, and distributes the same dividends, yet charges significantly lower fees. SPYM has an expense ratio of just 0.02%, compared to SPY's 0.0945%, making it a compelling choice for long-term investors looking to minimize costs.

For buy-and-hold investors, SPYM is often discussed alongside two other major players in the S&P 500 ETF space: the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV). Both VOO and IVV charge 0.03% in fees and have performance metrics that closely match those of SPYM. The primary distinction among these funds lies in their fee structures and the investment strategies they employ.

SPY, launched in 1993, operates as a unit investment trust (UIT), which limits its ability to reinvest dividends or lend securities, resulting in higher costs for shareholders. In contrast, SPYM, VOO, and IVV are open-end funds that can lend securities and reinvest cash, allowing them to operate more efficiently and at lower costs.

For investors with a $100,000 investment, the difference in fees translates to approximately $75 saved annually by choosing SPYM over SPY. Over time, these savings can accumulate significantly, especially for long-term holders. However, for traders who hold the fund for shorter periods, the fee difference may be less impactful.

SPYM has shown strong performance, returning about 12.5% year-to-date and around 21% over the past year, closely mirroring its peers. The fund's top holdings include major companies such as NVIDIA, Apple, Microsoft, Amazon, and Alphabet, reflecting the same weightings found in SPY.

While SPY is favored by active traders due to its superior options liquidity, long-term investors who do not engage in frequent trading may find SPYM to be a more cost-effective alternative. VOO and IVV also serve as viable options, particularly for those already invested in the Vanguard or iShares ecosystems, respectively.

Ultimately, the choice between these ETFs depends on individual investment strategies and preferences. For those focused on minimizing fees while maintaining exposure to the S&P 500, SPYM stands out as a strong contender, offering the same holdings as SPY at a fraction of the cost.