You may have missed it with all that has been going on this week, but we had a big development in the world of ASX exchange-traded funds (ETFs). Popular ETF provider Vanguard debuted a new index fund, and it's certainly worth paying attention to. Yep, the Vanguard S&P 500 US Shares Index ETF (ASX: V500) officially launched on the Australian stock market on Tuesday.
This is big news for Australian lovers of index funds and ASX ETFs. That's because, up until Tuesday, there was only one fund on the ASX available for investors who wanted to invest in the most popular and widely tracked index in the world – the S&P 500 Index.
The S&P 500 is the flagship index of the American stock markets. It covers the 500 largest companies that are listed on either the New York Stock Exchange or the NASDAQ. That's everything from tech giants Apple, Amazon, NVIDIA and Microsoft to American staples like Coca-Cola Co, Ford Motor Co, Berkshire Hathaway Inc and McDonald's Corp.
It's for this reason that legendary investor Warren Buffett calls the S&P 500 a "slice of America".
As we touched on above, until Tuesday, it was the iShares S&P 500 ETF (ASX: IVV) that was ASX investors' only port of call if they wished to invest in a simple S&P 500 index fund.
This has been great for iShares. IVV is currently the third-most popular ETF on the ASX by funds under management (about $13 billion).
Image source: Getty Images
Can Vanguard's new S&P 500 fund compete with the IVV ETF?
However, the iShares S&P 500 ETF now has some stiff competition from Vanguard. Vanguard is a beloved brand amongst ETF and index fund investors. This is largely thanks to the group's not-for-profit model, which allows it to offer some of the most competitive management fees on the market. The beloved status of its founder amongst the investing community, the late Jack Bogle, a pioneer of the first index funds, also helps.
The Vanguard S&P 500 US Shares Index ETF was also accompanied by a currency-hedged iteration, the Vanguard S&P 500 US Shares Index (Hedged) ETF (ASX: V5AH), as well as an unlisted managed fund.
But how does it stack up against the iShares S&P 500 ETF, which has been around since 2007?
Well, both products essentially offer investors the same thing: exposure to the 500 stocks in the S&P 500 index. The only real difference investors have to contemplate is the fees.
In this arena, iShares is still out in front. It charges a miniscule 0.04% per annum (or $4 a year for every $10,000 invested). Vanguard's V500 is still competitive, but is askign 0.07% per annum ($7 for every $10,00 invested). Now, Vanguard's fund is still fresh, so it's possible that the provider will be able to reassess its fee as its asset base grows larger. But as it stands today, IVV is the cheaper option. This will be an interesting space to watch.
