Will SPY Lose Its Asset Crown?

The king of all ETFs could be dethroned as soon as next year, based on current market trends.

The SPDR S&P 500 ETF Trust (SPY), the first U.S.-listed exchange-traded funds, is on track for its fourth net outflow in six years, while competing funds like the iShares Core S&P 500 ETF (IVV), the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market ETF (VTI), continue to gather assets at a rapid clip.

SPY, a revolutionary product that launched in 1993, has stood atop the hierarchy for much of its history. There have been a handful of challengers. In January 2001—amid the implosion of the dot-com bubble—the Invesco QQQ Trust (QQQ) held $26.7 billion in assets versus SPY’s $27.8 billion.

Then in August 2011, with the eurozone sovereign debt crisis raging and days after S&P Global downgraded the credit rating of the United States, assets under management in the SPDR Gold Trust (GLD) reached $76.7 billion, topping SPY’s AUM of $76.5 billion at the time.

Not Real Contenders 

These challenges to SPY’s asset leadership were overcome each time, and they never surpassed the fund and maintained the No. 1 spot.

An ETF solely targeting Nasdaq stocks and a fund holding gold could never compete with a broad market ETF tracking the most widely followed index in the financial markets.

But it’s a different story for IVV, VOO and VTI. These ETFs offer nearly identical exposure to SPY—a bit broader in the case of VTI—with expense ratios that are one-third of the first ETF, 0.03% versus 0.09%.

They are beloved by long-term investors, most of which add money into the ETFs day after day, year after year, regardless of market gyrations. The same can’t be said of SPY, which has registered net outflows since 2017.

IVV The Closest Competitor 

Currently, IVV, with $277 billion in assets under management, is the closest to matching and eventually surpassing SPY in AUM. It’s followed by VTI with $245 billion and VOO with $241 billion.

 
Assets Under Management

 

With $57 billion separating the Nos. 1 and 2 ETFs, it’s more likely we’ll see the flip sometime in 2024 or even 2025, rather than in 2023—though there’s an outside chance it could happen next year. IVV gained $37 billion on SPY so far this year, $31 billion in 2020 and $35 billion in 2018. 

All three of the challengers for the throne—IVV, VTI and VOO—have had inflows of more than $100 billion over the past 5 1/2 years, compared with outflows of $16 billion for SPY.

 

Flows By Year ($M)

Ticker

2022

2021

2020

2019

2018

2017

Total

SPY

-21,507

37,899

-24,581

-2,071

-16,507

10,580

-16,188

VOO

24,368

46,901

21,432

12,451

13,938

14,792

133,882

VTI

12,436

44,460

32,623

15,390

9,823

8,313

123,046

IVV

15,104

28,578

6,350

8,592

18,546

30,237

107,407

If current trends persist, all three of them will be larger than SPY within the next few years. 

SPY’s Not Going Anywhere 

Even if SPY falls down the ETF leaderboard, its place in ETF history is secured, and so is its place as the most liquid ETF in the world. It trades 100 million shares per day, 15 times more than its rivals. It also has a much deeper and more liquid options market.

These are advantages that probably won’t go away anytime soon, if ever, even after IVV, VTI and VOO become the larger ETFs.

No. 1 in assets or not, SPY is here to stay.

 

Follow Sumit on Twitter @sumitroy2

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