By Ian Salisbury
When it comes to picking the best S&P 500 index fund, the results are bound to be a photo finish. Even so, a recent look at performance over the past decade reveals a surprising winner.
Whether designed as a traditional mutual fund or ETF, funds that replicate the returns of the S&P 500 are the workhorses of many investors' stock portfolios. Four of the five largest funds by assets in fund tracker Morningstar's database employ this strategy.
Not all index funds are created equal. In a recent Morningstar study of more than 100 S&P 500 index tracking vehicles, the cheapest funds charged charged fees below 0.05% a year, while the most expensive -- often including a sales commission for financial advisors -- charged about 10 times as much
In general, the cheapest funds delivered the best performance, and Morningstar highlighted five ultra-cheap funds, any of which it said would be great for investors to own. But there were some interesting surprises in the results.
First, it's worth noting that of the best-known and most popular S&P 500 trackers, the $600 billion State Street SPDR S&P 500 ETF, was not on the recommended list for most investors. The fund, with an expense ratio of 0.09%, was widely considered groundbreaking as the first popular ETF when it hit the market in 1993.
It remains one of the most heavily traded vehicles on the market -- and the security of choice for many rapid-fire Wall Street equity desks and hedge funds. But its relatively high fees (compared to the cheapest funds) and its unusual legal structure make it less than ideal for long-term investors.
Instead, Morningstar singled out a slate of all-star funds from major fund providers, all of which have rock-bottom expense ratios: The Fidelity 500 Index Fund (annual fee of 0.02%); iShares Core S&P 500 ETF (0.03%); the Schwab S&P 500 Index Fund (0.02%); the Vanguard S&P 500 ETF (0.03%) and a sibling of the SPDR, the State Street SPDR Portfolio S&P 500 ETF (0.02%).
The Vanguard option is the modern-day incarnation of the storied Vanguard 500 fund, which kicked off investors' love affair with index investing in the 1970s. It's easily the most popular choice of the bunch with a whopping $1.5 trillion in assets between its ETF and traditional mutual fund versions.
In terms of performance, however, it has recently been nudged by the $113 billion State Street SPDR Portfolio S&P 500 ETF -- a fund one-tenth its size. The SPDR fund is designed to be a low-cost core holding, appealing to long term investors who don't want a trading vehicle such as its sister fund, the more-famous SPDR.
Over the past decade through Feb. 28, the State Street SPDR Portfolio S&P 500 ETF returned 15.53% a year, compared to 15.46% for the Vanguard S&P 500 ETF, according to Morningstar. The classic SPDR, for its part, returned 15.39%.
What to make of all this? If you own the Vanguard fund or one of the others on the list, don't run out and switch. The difference is a matter of a few hundred bucks, and what you pay in capital gains taxes is likely to swamp any tiny performance advantage.
Vanguard said in an email that its funds' unique ownership structure -- in which funds are owned by their shareholders rather than by a parent company -- "reinforces our long-standing focus on low costs, disciplined long-term management and giving investors the best chance for investment success."
Still, there are a couple of lessons for investors. Parsing the fine print -- such as the difference between the two SPDR options -- is worth your while when you are picking funds. The other is that, as long as fund companies are vying for every extra hundredth of a percentage point of return, investors will end up winners.
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 01, 2026 12:34 ET (16:34 GMT)
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