Why SPY and IVV has different price and dividend yield?

ggnn2020 · Sep 6, 2020

Both are SP500 ETF and both are fairly close to the index. SPY has much larger size probably due to its early creation date.

From Yahoo Finance:
SPX 3426.96
SPY 342.57, forward dividend yield 1.85%
IVV 343.98, forward dividend yield 2.04%

It looks like SPY is tracking SPX more accurately? But why they have different dividend yield? Can we know the SPX dividend yield?

DaveV · Sep 6, 2020

Half of the difference is that SPY charges 0.09% management fee, while IVV changes 0.04%

jharmon · Sep 6, 2020

And different ex-dates and payment dates too.

murray t turtle · Sep 6, 2020

DaveV said:
Half of the difference is that SPY charges 0.09% management fee, while IVV changes 0.04%
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%%
Good points;
like SPY+ VOO. SPY is the liquidity leader
VOO tends to beat SPY mostly a little bit but not always.
ALL my charts are SPY/SPXL/UPRO, so I use those...………………………………………………………………………………………………………………………………………..

ph1l · Sep 6, 2020

In addition to a higher expense ratio, SPY can't lend shares, use derivatives, or reinvest dividends. IVV and VOO can do these things and have tracked the S&P 500 index slightly better than SPY.

https://www.marketwatch.com/story/why-your-choice-of-sp-500-etf-matters-2013-03-19

Why your choice of S&P 500 ETF matters
Published: March 19, 2013 at 12:40 p.m. ET
By
J.J. Zhang

J.J. Zhang is chemical engineer and amateur financial adviser who was the winner in MarketWatch’s second annual World’s Next Great Investing Columnist contest. He runs the blog MarketTech Reports. You can follow him on Twitter @MarketTechRpts.

Without a doubt, ETFs have become one of the most popular financial products available to almost all investors. In the last 10 years, there has been an incredible proliferation of funds from multiple companies such as Vanguard, iShares (Blackrock), SPDR (State Street) and others.

However, many of these funds overlap with each other. For example, if you want to get a passive S&P 500 index, should you pick the Vanguard ETF VOO, -0.80% , the SPDR ETF SPY, -0.81% , or the iShares ETF IVV, -0.81% ? What are the differences between these ETFs and does it matter? This same dilemma can be found for a number of sectors and funds from emerging-market indices to bonds and more.

One of the most common pieces of advice given to retail investors regarding ETFs is to understand the expense ratio of each fund and pick the lowest one possible. It’s solid advice as expenses are a straight cut off the fund returns. But how much of an impact do expense ratios and other slight structural differences play on end performance?

S&P ETFs
Of all ETFs, the most broadly owned is the S&P 500 index, which can be purchased via Vanguard, SPDR and iShares. In theory, these ETFs should all be the same as they’re benchmarking the same index. However, there are some small differences hidden in their structure.

As noted by ETFdb.com, SPY is set up as a unit investment trust, which must replicate its index and thus has limits such as prohibiting lending out underlying shares to other firms. Of the three index ETFs, it’s the largest at $131 billion in assets, three times larger than IVV and 15 times larger than VOO. It also has the most liquidity, with a daily trading volume 50 to 100 times that of IVV and VOO.

From an expense-ratio perspective, it’s the highest at 0.095% (including a waived trustee fee of 0.016%) though to be fair, that is extremely low for a fund in general. It’s not uncommon to find funds with extremely high expense ratios of over 2%. Those should be avoided unless there’s a good reason.

The iShares ETF IVV is the second largest at $40 billion in assets and an expense ratio of 0.07%. Unlike SPY, it is allowed to use derivatives, portfolio lending and other strategies. Portfolio lending allows IVV to make a small additional profit, minus an undisclosed cut, which reduces overall costs but also brings a small risk of loss if the securities are not returned due to adverse issues at the borrowing firm.

It also allows immediate reinvestment of dividends from its holdings unlike SPY which holds it in cash until distribution. In general, this should have an overall positive impact. These differences however do mean that IVV has a higher potential to deviate from the S&P 500 index vs. SPY, both positively and negatively.

Vanguard’s VOO is similar to IVV in that it’s not limited in how it invests or holds it shares. As per the prospectus, VOO is allowed to invest in derivatives to stay fully invested or to deviate from normal investment strategies when needed such as for liquidity or valuation reasons. It also invests its daily cash in Vanguard money market funds.

As per Vanguard’s reputation, it has a low expense fee of 0.05% and only a 3% turnover ratio vs. SPY at 3.8% and IVV at 5%. Vanguard also engages in portfolio lending like IVV.

So what is the overall impact of these differences on performance over the last 10 years? Using returns from their respective prospectuses, the table below shows the yearly performance (or underperformance) of the three funds vs. the S&P 500 total return. Note that VOO was only released in 2010.

S&P 500 ETFs performance delta vs. S&P 500 index
YEAR SPDR (SPY) ISHARES (IVV) VANGUARD (VOO)
2012 -0.16 -0.09 -0.02
2011 -0.15 -0.08 -0.02
2010 -0.18 -0.09 n/a
2009 -0.16 -0.06 n/a
2008 +0.17 +0.06 n/a
2007 -0.07 -0.06 n/a
2006 -0.14 -0.11 n/a
2005 -0.12 -0.09 n/a
2004 -0.11 -0.10 n/a
2003 -0.32 -0.17 n/a
Average delta -0.12 -0.08 -0.02
Median delta -0.15 -0.09 -0.02
As expected, all three funds underperformed the S&P 500 index though VOO performed the best of the three. This underperformance is to be expected as I mentioned in my previous article, “Why your portfolio can’t perform,” since the S&P 500 is an ideal frictionless index.

The rank order of the three funds fell in line with their expense ratios, VOO did just slightly better than its expense ratio while IVV and SPY both did slightly worse than their expense ratio. This may be partly attributed to the structural differences mentioned earlier. Surprisingly, the ETFs beat the S&P 500 index during the market drop of 2008.

The end result of these small return differences is a 0.5% higher return for IVV vs. SPY portfolio over the 10 years listed here with a 97.2% vs. a 96.7% gain respectively, compared with 98.5% for the S&P 500 index. Though VOO is relatively new, its results so far are a positive indicator of its future.

Conclusions
Overall, while small, the performance difference among these S&P ETFs are measurable and essentially a free benefit, so the mantra of picking the lowest expense ratios between similar ETFs with minimal structural differences looks to be true. Though new, VOO shows good potential for long-term performance followed by IVV and lastly SPY.

However, comparison of other sets of similar ETFs may have bigger differences than the three funds here. For example, Vanguard’s Mid-Cap ETF VO, -1.03% is benchmarked against the CRSP Mid-Cap Index while iShares’ IJH, -0.39% which is benchmarked to the S&P 400 Mid-Cap Index. In those cases, it becomes more important to look closely at the fund structure as the end performance differences may be bigger.

As an example, a similar comparison of Vanguard’s Emerging Market ETF VWO, -0.18% versus iShares EEM, +0.04% would yield almost a 6% difference over 7 years.

With many online discount brokerages now making deals with specific ETF companies for commission-free trades, such as the recent Fidelity and iShares deal, it’s important to figure out the amount you save on the front end via free commissions vs. the ongoing drain from expense fees.

For investors making many small purchases, commission-free may be superior while investors with fewer but larger purchases may favor lower expense ratios instead. Or, one can look for deals where you get the best of both worlds.

Note: Data & results from this study and other similar ETF comparisons can be found at my MarketTech Reports blog.
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ggnn2020 · Sep 6, 2020

ph1l said:
In addition to a higher expense ratio, SPY can't lend shares, use derivatives, or reinvest dividends. IVV and VOO can do these things and have tracked the S&P 500 index slightly better than SPY.

https://www.marketwatch.com/story/why-your-choice-of-sp-500-etf-matters-2013-03-19
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Wow, good to know. But the article was written in 2013. Is it still true now? At least I see option trading is there for SPY.

ph1l · Sep 6, 2020

ggnn2020 said:
Wow, good to know. But the article was written in 2013. Is it still true now? At least I see option trading is there for SPY.
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I suspect traders write options on SPY, but SPY doesn't write options on itself.

brehantoir · Sep 7, 2020

I'm not familiar with the IVV, but the SPY price mostly deviates slightly from the SPX Index because the SPY is based on the S&P500 Futures contract whereas the SPX Index is based on the real time price of the 500 stocks that comprise this index. The S&P Futures contracts expire once every 3 months, at which time both underlying come into alignment.

ggnn2020 · Sep 7, 2020

brehantoir said:
I'm not familiar with the IVV, but the SPY price mostly deviates slightly from the SPX Index because the SPY is based on the S&P500 Futures contract whereas the SPX Index is based on the real time price of the 500 stocks that comprise this index. The S&P Futures contracts expire once every 3 months, at which time both underlying come into alignment.
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Sorry, any reference link that SPY is based on SPX future? It's surprising to know this.

brehantoir · Sep 7, 2020

I don't have a reference to attest the SPY (which is an ETF) is based off the S&P 500 Futures Contract (S&P Eminis /ES; and S&P Emicros) contrasted against the S&P Index (SPX) - I was told this info from a market maker