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Is the grandaddy of ETFs showing its age?

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March 21, 2014 business, dividend, dividends, economy, etf, etf benefits, etf cost, etf fund, etf investment, etf portfolio, etf risk, etf trading risks, etf trust, finance, financial market, financial markets, index, investing, investing in etfs, investment, lea jakobiak, market, markets, morningstar, s&p 500, s&p 500 index, securities, spdr s&p 500 etf, spy etf, stock market, stocks, trade idea, trading, tradingfloor.com, us equities, vanguard etf, vanguard s&p 500 etf, vanguard ticker, video, voo

Are you are looking for exposure to the S&P 500 index via an ETF, but are not really sure which one to go for? Ben Johnson, Director of Passive Fund Research at Morningstar shares his thoughts on popular ETFs and how beneficial they actually are for investors.  

According to Ben, the SPDR S&P 500 ETF is one of the most heavily traded securities on the planet. At 9 basis points, it's extremely low-cost. But he does question whether "is it really the best option for investors looking for a large-cap portfolio of U.S. equities". He also isn't certain it's the best option for investors seeking exposure to the S&P 500 index?

SPY - which is known as "the grandaddy of ETFs" - is structured as a unit investment trust, but this means it cannot reinvest income in the form of dividends, and it cannot lend out its portfolio securities.

As a result, Ben's choice when it comes to ETFs is the iShares S&P 500 ETF, ticker IVV, and the Vanguard S&P 500 ETF, ticker VOO--is the Vanguard S&P 500 ETF, again ticker VOO.

He explains Vanguard benefits from having a more modern legal structure that does allow for the reinvestment of dividend payments and does allow for securities lending which results in superior tracking performance. Additionally, the Vanguard S&P 500 ETF has a lower fee at 5 basis points. and in indexing, every basis point counts.