Same index, triple the fee — how to actually compare ETFs

Most people pick an ETF by asking which index it tracks. But several funds often track the same index, and the difference between them is cost. Over a long holding period that difference shows up directly in your returns. This article does not recommend any product. It sets out what to compare.

1. Same index, different cost

Three funds tracking the S&P 500

SPY costs about 3.15 times what VOO costs. Yet SPY still trades roughly eight times the volume. Why?

SPY launched in 1993 as the first US-listed ETF. Thirty-plus years of accumulated liquidity made it the reference instrument for institutional trading and the options market. So SPY’s higher fee is closer to a liquidity premium than to a worse product. If you trade in and out, a tight spread matters more than the expense ratio. If you hold for a decade, the expense ratio matters more. Same index, different job.

Two funds tracking the Nasdaq-100

Same issuer, same index, 0.03 percentage points apart. QQQM arrived in 2020 designed for buy-and-hold accumulation; QQQ trades nine times the volume and serves traders. The structures are identical and the use cases were deliberately split.

Two funds holding physical gold

This is the cleanest illustration of the liquidity-versus-cost trade-off. Identical underlying asset, 0.15 percentage points apart in fee, 2.6 times apart in volume.

2. What 0.03% versus 0.50% actually costs you

“Half a percent is nothing” is the most common mistake in fund selection. Run the arithmetic.

A 0.47 percentage point gap becomes an 8.4% wealth gap over 20 years and 12.4% over 30. The reason is that the fee is charged on the whole balance every year, so it compounds. Returns fluctuate; fees are certain.

For scale: Vanguard’s asset-weighted average expense ratio is 0.06% against an industry average of 0.39% (as of 31 December 2025). An industry-average fund sits on the 0.35–0.50% rows above.

3. Total cost of ownership

A rough formula: annual total cost ≈ expense ratio (%) + annual bid-ask spread (%) + annualised commissions (%). Buying and selling a fund with a 0.05% fee and a 0.3% spread frequently erases the advantage of the low fee.

Tracking difference is not tracking error

The practical benchmark is simple: a passive ETF’s tracking difference should sit close to its expense ratio. A fund charging 0.03% with a tracking difference of −0.4% is leaking money somewhere other than fees.

Causes beyond fees include index rebalancing costs, securities lending revenue (which works the other way and narrows the gap), withholding tax rates and treaty treatment, fair-value pricing adjustments, and cash drag.

Replication is also never exact. As of 30 June 2026, VOO held 506 positions against an index of 503; SPY held 504.

4. Why net assets matter

1. Closure risk. A liquidation forces a sale, realising capital gains at a time you did not choose. If it happens while you are underwater, the chance to recover is gone.
2. No room to cut fees. Without scale, fixed costs cannot be spread, so the fund cannot follow competitors down on price.
3. Wider spreads. Thin trading means a larger gap between buy and sell prices.

The tables above give a sense of scale: VOO at $1.07 trillion, QQQM at $103.6 billion. Both are large. Plenty of newly launched thematic ETFs hold under $100 million.

5. “Dividend ETF” describes three different products

JEPI’s 8.09% is trailing twelve-month distribution, not a forward yield. More importantly, the source of that income is option premium, not corporate dividends. A covered-call structure sells upside to collect premium, so gains are capped in a rising market. The fee is about ten times a passive equivalent.

“High dividend yield” therefore cannot rank these three against each other. The income comes from different places, and each source behaves differently depending on the market.

What to check, in order