Vanguard and iShares S&P 500 ETFs Compared: Is There Really a Difference?

S&P 500 funds are likely a core holding for any investor. There are plenty of options out there for gaining exposure to the index. We look at two of the largest, the Vanguard S&P 500 ETF (NYSEMKT:VOO) and iShares Core S&P 500 ETF (NYSEMKT:IVV). These two ETFs are nearly identical in cost and performance, though VOO commands a significantly larger asset base while IVV offers a longer track record.

Investors seeking a low-cost foundation for a long-term portfolio often narrow their search to these two titans. Both VOO and the iShares fund aim to mirror the performance of the S&P 500 index, providing diversified exposure to the 500 largest American corporations. Because they track the same underlying index, they serve as interchangeable building blocks for growth-oriented investors.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Efficiency is a hallmark of both products, as they share a razor-thin expense ratio of 0.03%. This means investors pay just $0.30 per $1,000 invested annually. Both ETFs also provide a trailing-12-month distribution yield of more than 1%, ensuring that costs and income levels remain virtually identical for long-term investors.

Performance & risk comparison

What's inside

The Vanguard S&P 500 ETF holds 505 positions and is concentrated in sectors like technology at nearly 36%, financial services at close to 12%, and communication services at a little over 11%. Its largest positions include Nvidia Corp (NASDAQ:NVDA) at 7.84%, Apple Inc. (NASDAQ:AAPL) at 6.44%, and Microsoft Corp (NASDAQ:MSFT) at 4.89%. This fund launched in 2010 and has paid almost $7.13 per share over the trailing 12 months. Because it is a market-cap weighted fund, its performance is largely driven by the massive technology companies that dominate the modern American economy.

The iShares Core S&P 500 ETF holds 504 positions and was launched in 2000. It mirrors its peer with heavy exposure to technology at just over 39%, financial services at a smidgen greater than 11%, and communication services at close to 11%. Top holdings for the iShares fund include Nvidia Corp (NASDAQ:NVDA) at 7.88%, Apple Inc (NASDAQ:AAPL) at 7.04%, and Microsoft Corp (NASDAQ:MSFT) at 5.14%. The fund has a trailing-12-month dividend of $8.06 per share. Both products provide investors with a highly liquid and efficient way to capture the broad returns of the domestic equity market.

Which is the better buy?

It may be a surprise that S&P 500-tracking ETFs differ from one another, but it shouldn’t be. It’s impossible to replicate an index’s performance exactly due to expenses and tracking error. Both the Vanguard and iShares ETF also hold slightly more securities than are listed in the S&P 500 index (which has 503 stocks), as part of the funds’ approach of accounting for multiple shares of stock for one company, like Alphabet (NASDAQ:GOOGL).

Both funds closely replicate the S&P 500’s performance. Over the past five years, VOO has returned 14.11% compared to 14.15% for the benchmark index, while IVV has returned 14.12% due to its higher dividend payout over the past year. In fact, over the past 10 years through May 31, both VOO and IVV have returned 15.61% annually, compared to 15.65% for the S&P 500.

In short, while there are slight differences, either the Vanguard S&P 500 ETF or the iShares Core S&P 500 ETF is a sterling choice for a low-cost ETF tracking the most popular U.S. stock index. Deciding between the two should probably come down to whether you have easier access to one fund over the other (such as a retirement plan offering) or if you prefer more income. In that case, IVV is your choice, although dividend income can be taxable depending on what type of account you hold the fund in.

For more guidance on ETF investing, check out the full guide at this link.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.