Hey everyone, just a quick question.
I am looking at ETFs like SWPPX, SPY, VOO, etc. They all track the S&P 500 but show slightly different returns over time. Since they all track the same stocks, shouldn’t their returns be the same? Is the difference due to varying expense ratios, slight differences in dividends, or something else?
It’s nearly impossible to track the S&P 500 exactly. If you compare the holdings of popular S&P 500 ETFs, you will notice slight differences in stock weights. The index is rebalanced each quarter, which can involve hundreds of trades with complex position sizing, and there are numerous ways to approach this rebalancing. As a result, the underlying portfolios of different S&P 500 funds vary slightly, leading to differences in total returns.
Charges, holding disparities. Dividend treatment, While VOO and other companies can reinvest dividends more quickly, SPY must hang onto its dividends. Treatment by corporate action. Lending policy for securities. variations in size. etc.
The difference lies in how everything is executed.
ETFs do not trade their underlying assets. shares are created and destroyed by an aps mechanism.
When the index adds or removes companies, a large fund can’t instantly buy or sell those shares. It takes time to acquire or offload significant amounts. I believe this delay, along with funds being slightly out of sync with the index and with each other, leads to the discrepancies.