The Best S&P 500 ETF For Singaporeans

This post was originally published on my website, at thefrugalstudent.com.

Disclaimer: All data in this post are accurate as of 5/5/21.

In my beginner's guide to ETFs, I talked about how there are often multiple ETFs that track a single index.

The S&P 500 index is an example that has many ETFs tracking it.

So if you want to start investing in the S&P 500, which ETF do you pick? Are they all the same, or is there a best one?

In this post, I'm going to take a closer look at 5 popular S&P 500 ETFs to determine which one is, in theory, the best ETF.

The Contestants

First, let's meet the contestants.

The 5 ETFs we will be looking at are:

1. SPY (State Street SPDR, NYSE)

2. IVV (iShares, NYSE)

3. VOO (Vanguard, NYSE)

4. CSPX (iShares, LSE)

5. VUSD (Vanguard, LSE)

These ETFs were selected because I feel that they are discussed heavily among Singaporeans, and they are all traded in USD for a fair comparison.

With this, let's get into some of the metrics and factors that can be used to distinguish these ETFs from each other.

Expense Ratio

This is an important factor to consider because it directly relates to the cost of your investment.

The expense ratio is the fee imposed by fund managers for managing the ETF.

Naturally, we want to minimise the fees we pay for our investments, and we can do so by selecting ETFs with the lowest expense ratios.

Source: Bloomberg

From the table above, IVV and VOO are tied for the lowest expense ratio at 0.03%.

But in general, the expense ratios of all 5 ETFs are considerably low.

Winner: IVV, VOO

Distributing/Accumulating

This refers to how the ETF deals with the dividends that it receives from its underlying companies.

As the names suggest, distributing (DST) ETFs distribute their dividends to investors while accumulating (ACC) ETFs reinvest their dividends into themselves.

CSPX is the only ACC ETF among the 5.

Assuming that all dividends are reinvested, the total returns generated by DST and ACC ETFs should be equal.

However, when dividends are paid out to investors, it is likely that they will not be efficiently reinvested because of the time lag between these events.

Also, if your broker doesn't allow fractional shares, you often end up with leftover dividends that cannot be reinvested.

In general, ACC ETFs are more efficient and convenient than DST ETFs especially for investors who are in the wealth accumulation phase (ie young investors).

For a more detailed post about DST and ACC ETFs, you can check out this post.

Winner: CSPX

Dividend Yield

This is a factor that directly relates to overall investment returns.

Dividend withholding tax (WHT) is a factor that should be considered in tandem with dividend yield because it affects the final dividend received by investors.

WHT is the tax imposed by governments on dividends that are paid from companies within a country to recipients outside the country.

For Singaporean investors, the effective WHT is 30% for US-domiciled ETFs (ie SPY, IVV, VOO) and 15% for Ireland-domiciled ETFs (ie CSPX, VUSD).

For more information about WHT, you can check out this post.

Source: Bloomberg

Note that US-domiciled ETFs disclose gross dividend yields while Ireland-domiciled ETFs disclose net dividend yields.

CSPX does not have a dividend yield as it is an ACC ETF.

Based on the data above, VUSD has the highest net dividend yield of 1.22%.

Winner: VUSD

Liquidity

This is a factor that indirectly affects your investment returns.

Liquidity refers to how easy it is to convert an investment into cash and is often judged based on the trading volume.

A higher volume indicates that more people are trading a particular investment, and would thus be easier to sell for cash.

This indirectly leads to a tighter bid-ask spread, which is the difference between the prices that buyers and sellers are willing to trade at respectively, simply because there are more people looking to trade.

In turn, this means that it is more likely for you to get a better price as compared to if the trade volume is low and the bid-ask spread is high.

Source: Yahoo Finance

As you can see, the ETFs traded on the NYSE have much higher trade volumes than those traded on the LSE, which is expected since the NYSE is a more active market than the LSE.

SPY has the highest trade volume by a landslide because it is the oldest and first S&P 500 ETF created.

Winner: SPY

Which Is The Best?

So far, the winners of each factor/metric have been different. So is there really a "best" ETF?

Well, the answer is both yes and no.

It's not possible to pick an all-around best ETF because they are each good for different reasons.

But based on what you value and how you define a "best" ETF, you can definitely pick an ETF that works best for you.

My Pick: CSPX

With all that's been said, in my opinion, the best S&P 500 ETF is CSPX.

The main reason for this choice is the cost-efficiency of CSPX over the other ETFs.

Part of this is derived from the fact that CSPX is an ACC ETF - so it reinvests dividends efficiently and I incur no extra cost during investments.

CSPX doesn't disclose its dividend yield as an ACC ETF, but that's not to say that it doesn't receive dividends - it simply never reaches investors.

Since CSPX is domiciled in Ireland, it has tax advantages over its US-domiciled counterparts with regards to dividends, similar to VUSD, further driving its cost-efficiency as an ETF.

Even though CSPX has a marginally higher expense ratio as compared to VOO/IVV, this difference (0.04%) is expected to be outweighed by that in net dividends.

It should be a reasonable assumption that CSPX receives fairly similar dividends to VUSD.

Thus, the difference in net dividends should be ~0.3%.

Finally, while CSPX is the least liquid among the 5 ETFs in terms of trade volume, the trade volume itself is not objectively low.

Most of us probably won't be trading in amounts that would be significantly impacted by this, so I think it's not as important of a factor to consider.

Closing Thoughts

There are many S&P 500 ETFs to choose from that are all slightly different from each other.

If you want to identify the best S&P 500 ETF to invest in, you need to define what, to you, makes an ETF the best and decide accordingly.

Personally, I think that CSPX is the best S&P 500 ETF for Singaporean investors.

However, this is based solely on the characteristics and metrics of the ETF, and other things need to be considered as well such as brokerage fees.

At the end of the day, while differences in price and performance between various S&P 500 ETFs will exist, they are unlikely to be particularly significant (~0.26% for CSPX vs VOO).

If you're not the kind to nitpick about the minor details, you probably shouldn't be worrying about the nuances between different S&P 500 ETFs - simply investing in one is good enough.

Which S&P 500 ETF do you invest in and why? Let me know in the comments below!