Beyond the Expense Ratio: How to Actually Compare ETFs That Track the Same Asset

Even when two ETFs track the same index, Bitcoin, the S&P 500, or gold, the cheapest fee on paper doesn’t always translate into the lowest real-world cost. Liquidity, bid-ask spreads, tracking error, and fund structure can materially change long-term and short-term outcomes, especially as 2024–2025 markets see higher trading volumes and tighter spreads in larger funds.

• Start with structure, liquidity, and size: Larger funds like IBIT and SPY typically offer tighter spreads and lower market-impact costs than smaller peers.
• Tracking error matters as much as fees: ETFs that more accurately follow their benchmark often outperform lower-fee competitors over time.
• Bid-ask spreads are a hidden cost: Frequent traders may save more with highly liquid ETFs even if their expense ratios are slightly higher.
• Fund structure affects performance: Trust structures like SPY vs. reinvesting structures like IVV or VOO can change dividend handling and tax efficiency.
• Gold and commodity ETFs vary widely: Highly liquid options such as GLD often deliver tighter spreads than lower-fee synthetic or smaller physical funds.

For many investors, choosing an exchange-traded fund (ETF) that tracks a major asset such as Bitcoin, the S&P 500, or gold appears simple: pick the option with the lowest expense ratio. However, this approach overlooks major factors that can influence long-term performance. Even when ETFs track the same benchmark, differences in structure, liquidity, tracking method, spreads, and tax treatment can create meaningful gaps in returns and overall costs. Understanding these variations is essential for making a smarter ETF selection that goes beyond headline fees.

The Tools – Where to Compare ETFs Online

Before evaluating what truly matters in ETF selection, it is important to know where to run a reliable comparison. Several trusted platforms provide detailed data, screening tools, and side-by-side analysis features:

• ETF Database offers comprehensive information on performance, expenses, liquidity, and holdings.
• Morningstar provides analyst ratings, risk metrics, and powerful ETF comparison tools.
• ETF.com includes screeners, fund reports, and advanced research features.
• justETF is popular in Europe for its intuitive ETF comparison interface.
• Broker comparison tools from major trading platforms also allow direct ETF-to-ETF analysis using real-time market data.

Using these resources helps investors move beyond basic expense ratios and understand real-world factors such as tracking accuracy, liquidity, and portfolio structure.

Beyond the Fee – Why Expense Ratios Aren’t Everything

Expense ratios are the annual fees ETFs charge as a percentage of assets, and they do matter, a small difference like 0.10% can compound into a large cost over decades. But choosing an ETF based only on its stated fee can be misleading because several other structural factors affect your real investing costs.

BlackRock’s spot Bitcoin ETF, IBIT, is a strong example. While it charges a 0.25% expense ratio, similar to other Bitcoin ETFs, its real-world advantages come from factors beyond the fee:

• Liquidity: IBIT’s large fund size supports smoother trading, which you can review on its official fund page.

• Tracking Efficiency: Its structure helps it closely follow Bitcoin’s price with minimal deviation.

• Bid-Ask Spreads: Higher trading activity often leads to narrower spreads, reducing overall trading costs.

These elements, liquidity, tracking accuracy, and tight spreads, can have a bigger impact on real returns than a small difference in headline fees.

The Hidden Costs – Bid-Ask Spreads, Tracking Error, and Fund Size

Beyond the headline expense ratio, several hidden factors can influence the real cost and performance of an ETF. One of these is the bid-ask spread, which reflects the difference between what buyers will pay and what sellers will accept. Wider spreads create higher trading costs and can reduce overall returns.

Another important factor is tracking error, which measures how closely an ETF mirrors its benchmark. A lower tracking error suggests the fund is more accurately following the underlying index. This is essential for investors who want consistent benchmark exposure.

Fund size and liquidity also play a major role in cost efficiency. Larger ETFs typically offer deeper liquidity, tighter spreads, and more stable trading conditions. This reduces slippage and improves execution quality.

Ignoring these hidden costs can lead to paying more than expected and experiencing results that differ from the ETF’s stated objective, even when choosing a fund with a low expense ratio.

Real Examples – Bitcoin, S&P 500, and Gold ETFs

Bitcoin ETFs: IBIT vs FBTC and Others

BlackRock’s IBIT currently leads the U.S. spot Bitcoin ETF market in assets and trading activity. Although IBIT and FBTC charge similar fees, IBIT’s larger size gives it higher liquidity, tighter bid-ask spreads, and lower market-impact costs. These advantages often make IBIT cheaper to trade and can lead to more consistent real-world performance.

S&P 500 Trackers: VOO vs SPY vs IVV

Vanguard’s VOO, SPDR’s SPY, and iShares’ IVV all track the S&P 500 with expense ratios around or below 0.10%, but their differences still influence real costs:

• SPY is the oldest and most liquid, making it ideal for active traders. Its expense ratio is slightly higher (around 0.09%) and its trust structure limits dividend reinvestment until payouts.

• VOO offers one of the lowest fees in the category (about 0.03%) and is built for long-term cost efficiency.

• IVV provides strong liquidity, low fees similar to VOO, and reinvests dividends internally.

Long-term investors often favor VOO for its lower cost structure, while short-term or high-volume traders may choose SPY due to its unmatched liquidity.

Gold ETFs

Gold ETFs differ in structure, liquidity, and how they gain exposure to gold. SPDR Gold Shares (GLD) remains one of the most liquid physical gold ETFs, offering tight bid-ask spreads that help minimize execution costs.  Smaller or synthetic gold ETFs may advertise lower fees, but their lower liquidity can result in higher real trading costs, especially for larger orders.

The Decision Framework – A Practical Hierarchy

When comparing similar ETFs, a clear decision framework helps investors choose the most efficient option. Start by evaluating the expense ratio, which directly impacts long-term returns by determining how much you pay in annual fees. Next, look at fund size and liquidity, larger ETFs typically offer deeper liquidity and tighter bid-ask spreads, reducing real trading costs.

Examine tracking error to ensure the ETF closely follows its benchmark. A lower tracking error means more accurate performance replication. For active traders, focus on the bid-ask spread, since wider spreads can significantly increase transaction costs during frequent trades. Finally, review the fund structure and any additional fees, including custody charges or the risks associated with synthetic exposure.

Using this hierarchy aligns ETF selection with your investment style, helping balance cost, efficiency, and overall portfolio performance.

Counterintuitive Insights

A lower-fee ETF is not always the cheapest option. An ETF with a slightly lower expense ratio but poor liquidity and wider bid-ask spreads can end up costing more to trade than a fund with a marginally higher fee but tight, efficient spreads. Fund size also plays a bigger role than most investors expect. Larger ETFs tend to attract more market makers, which improves liquidity and helps reduce overall trade execution costs.

For long-term, buy-and-hold investors, the expense ratio remains the dominant cost factor. However, active or frequent traders need to pay equal attention to spreads, as wider spreads can quickly erode trading efficiency. In some cases, ETFs with higher expense ratios still deliver better real-world results because they offer stronger tracking accuracy and superior liquidity, leading to lower hidden costs over time.

These insights highlight why evaluating ETFs requires more than just comparing headline fees.

Practical Takeaway – Step-by-Step ETF Comparison

A disciplined, structured approach can turn ETF selection into a strategic process rather than guesswork. Use the following steps to compare similar ETFs effectively:

1. Start with reputable research platforms

Begin with trusted comparison tools such as ETF Database, Morningstar, or your brokerage’s built-in ETF screeners to gather core data.

2. Filter by expense ratio based on your investment horizon

Lower fees matter more for long-term investors, while short-term traders may prioritize liquidity and spreads over minimal cost differences.

3. Review fund size and liquidity metrics

Larger funds generally offer deeper liquidity, tighter spreads, and more efficient execution, key advantages for cost-conscious traders.

4. Examine tracking error statistics

A strong ETF closely mirrors its benchmark. Lower tracking error ensures the fund delivers returns that truly align with the underlying index or asset.

5. Analyze bid-ask spreads

Wide spreads can increase the cost of entering and exiting positions. Liquid ETFs typically provide narrower spreads and better trading efficiency.

6. Understand fund structure and any additional charges

Check whether the ETF uses physical, synthetic, or futures-based exposure, and review any custody fees, swap fees, or structural nuances that may affect returns.

7. Make a final decision based on your investment style

Align the ETF with your priorities, low cost, high liquidity, minimal tracking error, or efficient trading, using the hierarchy above as your guide.

Final Insight

Expense ratios are an important starting point, but they are not enough on their own. Comparing liquidity, fund size, tracking accuracy, spreads, and structure alongside fees helps investors uncover real long-term value. This thoughtful, layered evaluation leads to smarter ETF choices that support both performance and cost efficiency.

By applying this framework consistently, investors can transform ETF selection into a strategic, data-driven process that improves long-term wealth outcomes while avoiding unnecessary costs.

Related: This article is part of our broader Investing Hub, where you’ll find guides on market behavior, ETF research, asset allocation, and long-term wealth planning.