The Best Large-Cap ETFs

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Includes: IVV, SCHX, SPY, VOO, VT
by: Simply Investing

Summary

This article compares three of the most popular U.S. large-cap ETFs, SPY, IVV and VOO.

The three ETFs discussed in this article all track the S&P 500 index and are all good options for exposure to U.S. large-cap stocks.

SPY is the most liquid of the three ETFs and might be the best option for some traders.

For long term investors, the limitations imposed on SPY may be a disadvantage and therefore IVV or VO are probably better options.

U.S. Large-Cap ETF Options - Investment Synopsis

This article reviews and compares three of the most popular U.S. large-cap ETF options, the SPDR S&P 500 Trust ETF (NYSEARCA:SPY), the iShares Core S&P 500 ETF (NYSEARCA:IVV) and the Vanguard S&P 500 ETF (NYSEARCA:VOO). These three ETFs seek to provide investment results that correspond to the performance of the S&P 500 index, they closely track the S&P 500 index and each other. Although there are many other ETFs in the U.S. large-cap category with other objectives, that do not track the S&P 500 index or each other so closely, these are the three largest ETFs by assets under management and the focus of this article.

SPY is the most liquid of the three ETFs and might be the best option for some traders. SPY is however, a unit investment trust (UIT) which does not allow it the flexibility to lend out shares or reinvest dividends. For long term investors, the limitations on SPY may be a disadvantage and therefore IVV or VO are probably better options.

5 Year Performance

Click to enlarge

Source: Yahoo Finance (01/17/2016)

These three ETFs track the S&P 500 index and therefore, have tracked each other very closely over the last 5 years (so closely that it is nearly impossibly to see where the three lines diverge in the chart above). The three ETFs are up approximately 47% over the five year period but are down approximately 8% already in 2016.

Equity Characteristics

ETF

SPY

IVV

VOO

As of Date

01/14/2016

01/14/2016

12/31/2015

Est 3-5 year EPS growth

10.07%

Price/Book Ratio

2.53

2.59

P/E ratio FY1

16.11

P/E ratio

17.73

20.5

Avg Wtd Market Cap

133 Billion

Median Market Cap

81 Billion

Click to enlarge

Sources: State Street Global Advisors (01/14/2016), iShares (01/14/2016), Vanguard (12/31/2015)

The websites for the different ETFs provide different equity characteristics and use different methods to calculate the ratios. By viewing the various information provided from the three sites together, although not a complete picture, it allows a more detailed view than any one site provides and it is interesting to see the different characteristics reported and the different results listed for the same characteristics.

Top 10 Holdings

ETF

SPY

IVV

VOO

As of Date

01/14/2016

01/14/2016

12/31/2015

Apple (NASDAQ:AAPL)

Apple

Apple

Microsoft (NASDAQ:MSFT)

Microsoft

Alphabet (NASDAQ:GOOG)

Exxon (NYSE:XOM)

Exxon

Microsoft

General Electric (NYSE:GE)

General Electric

Exxon

Johnson & Johnson (NYSE:JNJ)

Johnson & Johnson

General Electric

Berkshire Hathaway Inc (NYSE:BRK.A)

Berkshire Hathaway Inc

Johnson & Johnson

Wells Fargo & Co (NYSE:WFC)

Wells Fargo & Co

Amazon (NASDAQ:AMZN)

Amazon

Amazon

Wells Fargo & Co

Facebook (NASDAQ:FB)

Facebook

Berkshire Hathaway Inc

JPMorgan Chase (NYSE:JPM)

JPMorgan Chase

JPMorgan Chase

Click to enlarge

Sources: State Street Global Advisors (01/14/2016), iShares (01/14/2016), Vanguard (12/31/2015)

As the table above shows and as would be expected, the top ten holdings for SPY and IVV are the same. VOO reports Alphabet, which neither SPY nor IVV report, as the second largest holding. It seems strange that neither SPY nor IVV show Alphabet as a top ten holding and I believe this is a mistake on their websites due to the recent change in name from Google to Alphabet. Other than that, Vanguard's listing shows a slight difference in order of holdings from the other two, this is due to the change in prices since 12/31/2015, the date of the VOO data and 01/14/2016, the date of the SPY and IVV data.

Expenses and dividend yield

SPY

IVV

VOO

Expense ratio (%)

0.09

0.07

0.05

Dividend Yield (%)

2.15

2.05

2.12

Click to enlarge

Sources: State Street Global Advisors (01/14/2016), iShares (12/31/2016), Vanguard (01/15/2015)

The three ETFs have very reasonable expense ratios. Schwab has an ETF in the category, the Schwab U.S Large-Cap ETF (NYSEARCA:SCHX), with an even lower expense ratio of 0.03% but at these levels of expense ratio, unless your investment is very large or very long term, the differences in expense ratios are not extremely significant.

The dividend yields are similar but differ slightly. I believe the differences reported on the websites are primarily due to the different websites calculating the yield on different dates and therefore using different prices.

Equity Sector Diversification (%)

ETF

SPY

IVV

VOO

As of Date

01/14/2016

01/14/2016

12/31/2015

Information Tech

20.66

20.61

20.70

Financials

16.20

16.16

16.50

Health Care

15.15

15.12

15.10

Consumer Discretionary

12.78

12.75

12.90

Consumer Staples

10.38

10.37

10.10

Industrials

9.98

9.95

10.00

Energy

6.49

6.48

6.50

Utilities

3.19

3.20

3.00

Materials

2.64

2.64

2.80

Telecommunications

2.53

2.52

2.40

Click to enlarge

Sources: State Street Global Advisors (01/14/2016), iShares (01/14/2016), Vanguard (12/31/2015)

As expected, the equity sector diversification is very similar between the three ETFs. With the largest allocation to information technology, followed by financials and health care.

ETFs in the same category

Above is a list of the top 10 U.S. large-cap ETFs, listed by assets under management (AUM). The three largest funds were reviewed in this article and have very similar characteristics but some of the other funds listed above are not based on the S&P 500 index and have very different characteristics. For those that want to do further research, additional detail on these ETFs is available on Seeking Alpha's ETF Hub.

Conclusion

Many U.S. investors have a core portion of their portfolio invested in U.S. large-cap mutual funds, ETFs or individual stocks. The three ETFs discussed in this article all track the S&P 500 index and are all good options for exposure to U.S. large-cap stocks.

SPY is the most liquid of the three ETFs and might be the best option for some traders. SPY is however, a unit investment trust (UIT) which does not allow the flexibility to lend out shares or reinvest dividends. For long term investors, the limitations on SPY may be a disadvantage and therefore IVV or VO are probably better options.

With the strong performance of the U.S. market over the last 5, 10 and 20 year periods, even with the recent downturn, stocks are still at high valuations. Investors should consider using dollar cost averaging if adding large new investments to a portfolio.

Addendum - Simply Investing Philosophy

Keep investing simple, consistent, diversified, low cost and long term and you will significantly increase your chance of success.

Investing doesn't have to be difficult, time consuming or involve large fees. The problem with investing, for many investors, is that it can get complex quickly and when it gets complex and then the prices of investments start falling, it is easy for an investor to lose focus on the original investment objective and make mistakes.

Establishing a portfolio with a core investment in well-diversified, low expense ETFs, held for the long term, is a good way to either get started investing or to reduce the complexity of an investment portfolio. The core of the portfolio can be as simple as one well diversified global ETF with a low expense ratio, like Vanguard Total World Stock ETF (NYSEARCA:VT). Typically, the core of the portfolio would include exposure to large-cap, mid-cap and small-cap stocks in the U.S., foreign developed market stocks, emerging markets and fixed income.

As an investor's experience, time dedicated to investing activities and desired risk, increases, the investor may or may not choose to adjust the core portion of the portfolio. Investors that enjoy the process and want to gain exposure to new areas or increase exposure to areas that the investor believes will outperform, can allocate a percentage of their portfolio to "edge" positions, which offer additional risk and opportunity.

ETF Investing Guide - Written by Seeking Alpha's Founder in 2006 is a great guide to setting up a portfolio of ETFs.

One Page Summary of the Entire Guide - The one-page summary of the ETF Investing Guide gets you started.

Disclosure: I am/we are long VT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.