There was a big news item and cause for celebration in the ETF industry last week. , the pioneering S&P 500 launched in 1993, became the first ETF globally to top $600 Billion AUM (US dollars). This is a very noteworthy achievement for SPY, the original SPDR. However, on a proportional basis, SPY continues to lose share to the two next largest ETFs: iShares’ IVV and Vanguard’s VOO. THere are two large reasons for this: expense ratios and structure differentials.
SPY’s expense ratio of 9.5 bp is 6.5 bp. higher that IVV and VOO (3 bp) and 7.5 bp higher than SPLG, the least expensive S&P 500 ETF at 2 bp. An even better reason to use IVV, VOO and/or SPLG in lieu of SPY is that the difference between returns now averages nearly 13 bp. per year. This is because SPY uses a legacy fund-trust structure that adds costs and does not allow it to provide timely dividend reinvestment and to earn income through securities lending.
This is why cost-sensitive institutional investors increasingly are diverting flows to the other three ETFs. Many experts believe that VOO will pass SPY in AUM before year-end 2026 and probably sooner. For smaller investors, I continue to encourage those buying new shares to purchase SPLG. The relatively tiny differentials on a small scale mean little to them but even so, who wants to pay more for the same thing without good reason?There are some reasons to still use SPY for megaflows and more liquid options. Also note that taxable accounts that hold existing shares of SPY must realize that selling them to substitute SPLG might trigger a huge tax bill. More By This Author:
