How to Choose S&P 500 ETFs: A Step-by-Step Guide to Calculating Returns for SPY/IVV/VOO | Moomoo Research

When considering index investment strategies, especially for large-cap stocks in the U.S. stock market, Exchange-Traded Funds (ETFs) that track the Standard & Poor's 500 Index (S&P 500 Index) are a popular choice among many investors.

The S&P 500 Index (.SPX.US) was created by Standard & Poor's in 1957. It is a market-capitalization-weighted index that includes stocks of the 500 largest companies listed on major U.S. exchanges. The index represents about 80% of the U.S. stock market's value, making it an important indicator of the overall health of the U.S. economy.

In the moomoo app, you can find ETFs tracking the S&P 500 by selecting "Market - ETF - S&P 500". We find that there are many ETFs tracking the S&P 500, so how should investors choose the right ETF for themselves? This article will focus on the top three ETFs by trading volume: SPDR S&P 500 ETF (SPY.US), iShares Core S&P 500 ETF (IVV.US), and Vanguard S&P 500 ETF (VOO.US), detailing their differences and similarities.

The three ETFs tracking the S&P 500 - SPY, IVV, and VOO - often confuse investors about which one is worth paying attention to and investing in. Let's take a closer look at the data comparison to see the differences.

Note: The above data is as of November 12, 2024

To summarize, although SPY, IVV, and VOO all track the same index - the S&P 500 index, there are subtle differences between them:

1. SPY is the most mature and liquid fund in the entire stock market.

2. SPY and VOO use full replication, where the portfolio holds all stocks with the same capital weights as the index. IVV uses Representative Sampling, where the fund may not hold all securities in the index. For example, IVV states that the fund typically invests at least 80% of its assets in component securities of its index and may invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents, etc.

3. Regarding dividends, over the past twelve months, the Annual Dividends for SPY/IVV/VOO were $7.005, $7.436, and $6.766 respectively, with dividend yields (TTM) of 1.17%, 1.24%, and 1.23%.

4. All three have good liquidity in the US ETF market and very similar returns. Year-to-date, SPY/IVV/VOO have gained +27.16%/+27.23%/+27.26% respectively.

1. Price Return: The price return of an ETF measures the change in its market price over a specific period. It's calculated by subtracting the initial price from the final price and dividing by the initial price. For example, if you bought an ETF at $100 and its price is now $120, the price return is 20%.

2. Total Return: The total return of an ETF considers both price appreciation and dividends or distributions received, as well as dividend taxes. It provides a more comprehensive view of investment performance. To calculate total return, add the after-tax dividend or distribution income to the price return.

Let's use VOO as an example to illustrate how to calculate the return rate of investment through DCA: consider an investor deciding to invest in stocks using a DCA strategy.

– Plan: Invest $1000 per month in VOO.

– Duration: 12 months, from December 1, 2023 to November 1, 2024.

– Price return:

On December 1, 2023, VOO's closing price was $416. A $1000 investment could buy 1000/416 = 2.40 shares of VOO (assuming no rounding to whole numbers for precision). On January 2, 2024, VOO's closing price rose, so $1000 could only buy 1000/429.74 = 2.33 shares of VOO. Following this pattern over 12 months, the investor invested a total of $12,000, purchasing a cumulative 25.29 shares of VOO at an average cost of $474.59 per share. Calculating with the November 1 price, each share would gain $50.35, totaling a profit of $1,273.22, yielding a return rate of 10.61%.

Note: The above data is as of November 1, 2024

– Dividend return

Over the past 12 months, VOO distributed dividends totaling $6.766. After deducting 30% dividend tax, the after-tax dividend yield is $4.7362. As of November 1, 2024, the yield from dividends is 0.039%.

– The total return from 12 months of dollar-cost averaging (DCA) into VOO is 10.651%.

Similarly, we can calculate that the price return rates for SPY and IVV are 10.56% and 10.59% respectively, with after-tax dividend yield rates of 0.041% and 0.043%. Assuming a monthly investment of $1000 over the past 12 months, the total return rates for SPY/IVV/VOO are 10.600%, 10.631%, and 10.650% respectively.