The biggest ETF may be changing

The largest and oldest ETF is the SPDR S&P 500 ETF Trust (ticker: SPY), with $624 B in assets under management. However, two other S&P 500 ETFs are close behind. The Vanguard S&P 500 ETF (ticker: VOO) and iShares Core S&P 500 ETF (ticker: IVV) have $588 B and $582 B of assets under management. In this post, we discuss the likely change in the largest ETF, what may be contributing to it, and why it matters to investors.

In this post, we discuss the likely change in the largest ETF, what may be contributing to it, and why it matters to investors.
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The oldest ETF, SPY

The SPDR S&P 500 ETF Trust, commonly referred to as SPY, has been around the longest of any ETF. With an inception date of January 1993, SPY created an entirely new way to invest in a passive index that offered greater tax efficiency than mutual funds. As we wrote about a few years ago, the taxable gains between ETFs and mutual funds can be significant. This tax inefficiency makes no difference for Individual Retirement Accounts (IRAs). But for taxable account holders, significant tax drag is drawing investors into ETFs. Several mutual funds are converting to ETFs.

The two other S&P 500 index ETFs

ETFs from Vanguard and iShares also offer ETFs that track the S&P 500 index. This index is very popular with many investors as it diversifies across many equity sectors. But, because of its weighting by market capitalization, some companies hold more significant influence. Nevertheless, it remains a popular index for investors. And, with an expense ratio of 0.03%, these ETFs offer this exposure with very little cost. These expense ratios are in stark contrast to SPY, with its expense ratio of 0.09%. While still small, the expense ratio of SPY is 3X larger, helping VOO and IVV to grow faster than SPY.

Another driver of ETF growth

So, investors seem to be preferring lower expense ratio ETFs. VOO’s unique structure may also be contributing to its popularity. But, this benefit, which Vanguard patented, has expired in 2023. So, IVV and VOO may continue to grow at a similar rate. For individual investors, the small difference between the two ETF structures likely makes little difference in meeting their investment objectives.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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