S&P 500 and beyond: how popular US trackers and ETFs compare

The US is the second most popular equity market to track, bested only by global options, with the most popular passive options housing billions in investors’ money.

Having previously gone under the bonnet of the global passive funds AJ Bell customers favour most, we’re turning our attention to the US.

As our research shows, the top 10 most popular products all have their own set of characteristics which feed into better or worse performance and higher or lower fees depending on which one you choose.

Why is the US so popular among passive investors?

Passive investing overall has become increasingly popular and the US in particular has become a favourite destination for this style of investing simply because it’s delivered consistently high returns for the best part of 20 years.

This has been underpinned by tech firms delivering significant growth and by low levels of inflation and interest rates making the growth stocks which populated the US market more attractive.

Since 2006 the S&P 500 has made almost double the total return from the MSCI All-Country World Index – of which the US market is now 63%. 

This made it tough for active managers to outperform, as AJ Bell’s ‘Manager versus Machine’ report found last year, and as a result, many investors have opted to take cheaper exposure via trackers instead.

Recent data found that UK retail investors put £28 billion into trackers in 2024, smashing the previous record set four years prior by almost £10 billion. This was a “stark contrast” to the £29 billion outflows from active funds, flagged by the Investment Association.

US funds took in a healthy chunk of these flows and monthly data shows that the trend hasn’t stopped since, bar events like Liberation Day and the US-Israel-Iran war stirring bouts of negative US sentiment.

A scan of the top holdings among AJ Bell customers and US passive funds are among some of the most widely held options.

But as we discovered in our global fund analysis, the most commonly owned funds may all appear to be the same on the surface, but can vary widely in terms of what they’re actually made up of and/or how much they cost.

Defining passive investing

‘Passive’ investing involves using a tracker fund or exchange-traded fund (ETF for short) to replicate the underlying index. This is unlike an active fund which has a manager picking just a few names they think will do better than the whole index combined.

This makes passive investment products cheaper because you just buy and hold a bit of everything in that index and aren’t paying the higher active management fees to get a more bespoke portfolio.

Because the US has been so popular the market is highly saturated and experts often say it’s a ‘race to the bottom’ with regards to fees. From our review of the most popular funds, fees ranged from 0.07% to 0.3%.

How tracker funds and ETFs are different

ETF and tracker funds are structurally different as well. An ETF is listed on the stock exchange (S&P, Nasdaq, FTSE for example) which means you buy and sell it just like you would shares in a company. You can buy them at any time, but the price will change depending on the intra-day moves.

Index funds are different as the price is based on the total value of all securities held within the fund, also known as the net asset value, and you’re only able to trade them once a day.

The US isn’t just one index

When discussing the US equity market, most investors focus on two indices: the aforementioned S&P 500 or the Nasdaq 100. Most of the popular ETFs and tracker funds tend to follow one of these indices.

And while often conflated, each have their own set of characteristics, which matters when it comes to picking the benchmark you’re tracking.

Straight off the bat you can see a big disparity in the amount of stocks they include, 500 versus just 100 (although there is also a Nasdaq Composite index which includes more than 3,000 stocks).

This makes the S&P the more diverse of the two and it’s why it is used as an overall gauge on the state of the US market. Meanwhile, the narrower Nasdaq is more volatile, because the fortunes of an individual company or handful of companies can have a greater impact on the basket’s average returns.

This has created some disparity in the indices’ respective performance, and therefore the portfolios tracking them.

Over 10 years, the Nasdaq has bested the S&P’s total returns over most time frames, delivering almost double the level of returns over 10 years.

This plays out in the performance data of the trackers as well, although not all of them track these two indices.

Comparing all 10 of them over five years, the total return ranged from 105.4% from the iShares NASDAQ 100 UCITS ETF to 75.92% in the Vanguard US Equity Index.

Digging a bit deeper, the S&P 500 and Nasdaq 100 indices themselves have very distinct characteristics.

The S&P 500 only allows US domiciled stocks in its universe, meanwhile the Nasdaq 100 allows some international names.

This’ partly because this Nasdaq index doesn’t include any financial companies, such as banks or life insurance firms, prioritising tech and growth sector stocks.

One example is Shopify. A Canadian firm which has a dual listing in the US allowing it to qualify for the index. Cambridge headquartered Arm Holdings is a UK example of this, having floated on the Nasdaq in 2023.

The S&P also has strict thresholds for market value ($14.5 billion minimum), liquidity (or how easy shares are to buy and sell), and profitability.

While they have some differences both indices’ performance is driven by a very narrow set of stocks. Largely the Magnificent 7: Meta, Alphabet, Amazon, Apple, Microsoft, Nvidia and Tesla.

This is because they’re weighted by market value, meaning larger companies have a much higher representation and thereby greater impact on the performance of the index, meanwhile smaller companies have less of an influence.

The Mag 7 boast market values in the hundreds of billions and even trillions and means that they account for 30-40% of these indices alone, even the ‘broader’ S&P.

Working out what is being tracked

Looking at the most popular ETFs and it’s typically clear from the names which indices they track it’s harder to discern for the majority of the tracker funds. And it’s a crucial factor given the performance varies by some margin depending on what they tracked.

The most popular one – UBS S&P 500 Index – is obvious but the HSBC UK American Index Fund also tracks it even though it is not referenced in the name of the product.

The Vanguard US Equity follows the S&P Total Market Index (TMI) and the ‘total market’ element means it will also cover mid, small and microcap stocks, as well as large cap.

The Legal & General US Index Trust and Fidelity Index US Fund are outliers, following the FTSE USA Index and S&P 500 (NUK) Index, respectively.

FTSE is the UK’s version of the S&P and this benchmark is designed for use in the creation of index tracking funds, derivatives and as a performance benchmark.

The S&P 500 (NUK) Index prioritises limiting volatility over returns, designed to keep the index’s ups and downs to around 15% per year. It’s specifically designed for use by risk-controlled funds.

While not affiliated with any of the 10 funds here, it’s worth mentioning the Dow Jones Industrial Average index.

It’s often mentioned alongside the S&P 500 and Nasdaq in terms of coverage and attention.

Comprising of just 30 stocks, the Dow Jones is price-weighted rather than equal weighted like the others and covers all industries except transportation and utilities. It tends to have a more modest representation for the tech sector than the Nasdaq or S&P 500.

In a price-weighted index, stocks with a higher share price have more impact on the index movement, regardless of how big the company actually is.