Why Pay to Own U.S. Stocks? This Zero-Fee ETF Is Beating the S&P 500

ETF fees have been racing toward zero for years, but one fund has already crossed the finish line and is somehow still pulling ahead of the competition.

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ETF fees have spent decades moving in one direction: down. Vanguard helped establish low-cost indexing as a mainstream investment strategy, while competitors such as State Street Investment Management, BlackRock and others have responded with increasingly inexpensive index funds of their own. For plain-vanilla U.S. equity exposure, paying even 0.10% annually can now look expensive. Still, there are still some hidden gems buried among the thousands of ETFs trading in the U.S., and one of the more unusual examples comes from BNY Investments.

The BNY Mellon US Large Cap Core Equity ETF (BKLC) takes fee compression about as far as it can go, with a 0.00% expense ratio. Zero fees wouldn’t mean much if the underlying investment were inferior. But since BKLC launched in 2020, it has actually produced a slightly higher annualized total return than the Vanguard S&P 500 ETF (VOO). The difference is small, but when both ETFs are essentially competing to provide cheap large-cap U.S. equity exposure, small differences are the entire game.

BKLC tracks the Solactive GBS United States 500 Index TR, which is designed to represent the large-cap segment of the U.S. equity market. That makes its portfolio look very familiar to anyone who has owned an S&P 500 ETF. You’re getting roughly 500 of America’s largest publicly traded companies, weighted primarily by market capitalization. The biggest technology companies consequently occupy the largest positions, followed by hundreds of progressively smaller constituents.

The important distinction is the benchmark. S&P Dow Jones Indices owns and licenses the S&P 500. Funds tracking it generally pay licensing costs for the privilege of attaching one of the world’s best-known index brands to their products. BKLC instead uses an index provided by Solactive, allowing BNY to offer very similar large-cap U.S. market exposure without paying for the S&P 500 name. BNY has taken the savings one step further by waiving BKLC’s management fee entirely. The ETF currently has a 0.00% expense ratio.

Securities lending can also generate revenue within an index portfolio. An ETF can temporarily lend stocks to qualified borrowers in exchange for collateral and lending fees. That revenue can help offset some of the unavoidable operating and trading costs associated with running a fund.

BKLC therefore demonstrates an interesting lesson about index investing. You don’t necessarily need the S&P 500 brand to obtain S&P 500-like exposure. An ultra-low-cost benchmark, efficient portfolio management and securities-lending revenue can provide a similar result without charging shareholders an explicit annual management fee.

The obvious comparison is VOO, which tracks the actual S&P 500 and is already extremely inexpensive, charging an expense ratio of just 0.03%. That’s only $3 annually for every $10,000 invested. BKLC charges nothing. Three basis points shouldn’t determine your entire investment strategy, and differences in benchmark methodology and portfolio performance can easily overwhelm a fee gap that small. But the results since BKLC’s inception have favored the zero-fee ETF.

According to Testfol.io, from April 9, 2020 through Sept. 22, 2026, BKLC generated a 19.10% annualized total return versus 18.88% for VOO, assuming distributions were reinvested and before accounting for individual taxes. A hypothetical $10,000 investment produced the following results

I wouldn’t attribute all of that outperformance to BKLC’s zero expense ratio. VOO’s 0.03% fee is too small to explain the entire 0.22-percentage-point annualized performance difference. The two funds track different indexes, so differences in constituent selection, weighting, rebalancing, trading and other implementation details can also affect returns.

Nor would I assume BKLC will continue beating VOO. Six and a half years is a useful live track record, but the two portfolios are similar enough that relatively small methodological differences can cause either ETF to lead over different periods. What BKLC has demonstrated is that investors don’t necessarily need to pay even three basis points for diversified large-cap U.S. equity exposure. Since its 2020 launch, the zero-fee structure hasn’t come at the expense of performance. So far, investors have actually received slightly more of it.

Contact [email protected] for any questions or corrections.

Tony Dong is the founder of ETF Portfolio Blueprint. He also serves as Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE.

Tony’s work focuses on ETF strategy, portfolio construction, and risk management, with an emphasis on making complex investment concepts accessible to everyday investors. His insights and analysis have also appeared in U.S. News & World Report, Kiplinger, MoneySense, and The Motley Fool.

Tony holds a Master of Science degree in enterprise risk management from Columbia University and the Certified ETF Advisor (CETF) designation from The ETF Institute.

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