Over the past decade, index ETFs have become the backbone of portfolios for both retail and institutional investors. The four largest of them currently manage combined assets exceeding three trillion dollars and largely determine where capital flows in the U.S. stock market. How do these funds—which, at first glance, track nearly the same indices—differ from one another, and why do details such as fund structure or annual fees matter much more than they seem at first glance?

Exchange-traded funds (ETFs) are currently the simplest way to gain exposure to hundreds of the world’s largest companies with a single purchase. Instead of building a portfolio of individual stocks, an investor buys a single ETF that tracks the performance of an entire index. This simplicity, low costs, and high liquidity explain why hundreds of billions of dollars have been flowing into index ETFs annually in recent years and why they have become the cornerstone of the vast majority of long-term portfolios.

Among…