The S&P 500 is often called the “benchmark” index, but that’s something of a misnomer, as it tracks just one asset class: large-cap U.S. stocks.
Nonetheless, the S&P 500 is a cornerstone of many retirement portfolios, as it does a good job of adding broad exposure across various sectors.
If you’re considering an S&P 500 index fund, you have several choices. You will find differences such as fees, fund structure and tracking accuracy among these funds.
“Under the hood, there’s always going to be some tracking error. That’s when a fund’s performance does not match the performance of the underlying index,” says R Persichitte, a certified financial planner and certified public accountant who’s an associate professor at Metropolitan State University of Denver.
“Sometimes, that can be good, but generally, we are trying to get what we pay for with index investing,” he adds.
Tracking error can be due to factors such as a fund’s expense ratio, a measure of the fees charged by the fund’s managers, or when the weightings of a fund’s holdings drift from index weightings.
For example, Apple Inc. (ticker: AAPL) is the largest component of the S&P 500, clocking in with a weighting of 7.2%. If an S&P 500 index fund were somehow to drift from that allocation, Apple would constitute either more or less of the fund, which would affect its return. It would also cause other stocks to drift from the index weighting.
Every fund has a management fee, although fees of index funds are, as a rule, lower than actively managed funds. That means every fund will lag behind its index, due to the baked-in expenses of a fund. A less expensive fund will adhere more closely to actual index performance. Through Oct. 23 this year, the S&P 500 has returned 21.5%.
Below is a look at five of the best S&P 500 index funds and how they compare to the index:

SPDR S&P 500 ETF Trust (SPY)

SPY is the largest S&P index fund, with about $595 billion under management. It’s not the cheapest way to access the S&P 500. However, its widespread use often outweighs its higher expense ratio for investors looking for a familiar fund.
“Although most investors invest in SPY, most are unaware that the index is capitalization-weighted, which creates some additional risk,” says Peter Tanous, founder and chairman of Lynx Investment Advisory in Washington, D.C.
Tanous points out that in the SPY exchange-traded fund, as well as other S&P 500 index funds, a handful of stocks represent a significant portion of index weighting.
“So the problem becomes obvious: If these stocks decline as a group, the decline will have a massively disproportionate effect on the index, which is cap-weighted,” he says.
For that reason, Tanous recommends that investors split their S&P 500 exposure into two parts, half in SPY and the other half in an equal-weighted S&P 500 index fund like the Invesco Equally-Weighted S&P 500 Fund (VADDX).
Expense ratio: 0.095%
Year-to-date (YTD) return: 22.7%

Vanguard S&P 500 ETF (VOO)

Vanguard’s S&P 500 ETF launched in 2010. Like SPY, this ETF aims to closely track the return of its benchmark, as a general proxy for U.S. stock returns. Vanguard has made a name for itself for its low-expense-ratio funds.
When evaluating S&P 500 index ETFs, Jon Wolfenbarger, founder and CEO of BullAndBearProfits.com in New York, says he favors VOO over SPY.
“Its expense ratio is two-thirds lower than SPY’s at 0.03%, and its five-year tracking error is also two-thirds lower than SPY at 0.02%,” he says.
Expense ratio: 0.03%
YTD return: 22.8%

iShares Core S&P 500 ETF (IVV)

Like VOO, iShares’ IVV ETF has a lower expense ratio than SPY.
Comparing SPY, VOO and IVV, Wolfenbarger says, IVV is his first choice among the three.
IVV has an edge over SPY, he says.
“It has the same low 0.03% expense ratio of VOO, but it has an even lower five-year tracking error of 0.01%,” says Wolfenbarger.
Expense ratio: 0.03%
YTD return: 22.8%

Fidelity 500 Index Fund (FXAIX)

Fidelity structures its S&P 500 index product as a mutual fund.
Mutual funds are generally known for higher expense ratios due to their active management. However, FXAIX simply tracks an index. Its expense ratio actually comes in lower than the S&P 500 ETFs.
When evaluating an S&P 500 fund, Persichitte says, “The benefit of index investing is low fees, so we should consider that as part of our analysis. Of the options given, FXAIX comes in cheapest, with 1.5 basis points for its net expense ratio. That means $1.50 in fees for every $10,000 invested.”
He points out that the lower fee boosts this fund’s 10-year return relative to SPY.
“If you invested $100,000 over 10 years, that would get you about $2,900 in additional returns by choosing the cheaper option,” Persichitte says, adding that this return assumes annual compounding at the 10-year rate.
Expense ratio: 0.015%
YTD return: 22.5%

Schwab S&P 500 Index Fund (SWPPX)

Like Fidelity’s S&P mutual fund, Schwab’s version also has a low expense ratio, which has helped bolster its long-term return.
The two funds have the same turnover rate of 2%. In a fund, turnover refers to the percentage of a portfolio’s holdings replaced over a year. You wouldn’t expect an S&P 500 fund to have more turnover than the underlying index.
“For long-term investors, two of the most popular S&P 500 index mutual funds are SWPPX and FXAIX,” says Wolfenbarger.
He notes that the expense ratio of both is lower than IVV.
SWPPX has a higher tracking error than FXAIX, giving the latter an overall edge, Wolfenbarger says.
Expense ratio: 0.02%
YTD return: 22.9%