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The crown for the world’s largest exchange-traded fund has been transferred, at least for now, to the Vanguard S&P 500 ETF (VOO) from the SPDR S&P 500 ETF Trust (SPY), which held the title for most of its 32-year existence.
VOO, at $631.8 billion in assets Tuesday morning, edged ahead of SPY by about $1.5 billion, thus wrapping up the months-long asset race for those of us who are paid to pay attention to such things.
But this is not the end of the jostling in the ever-evolving $10.7 trillion ETF space.
Anyone paying even cursory attention to the asset flow data beneath the ETF industry can appreciate the shifting dynamics along with various driving forces.
Sure, VOO surpassed SPY’s total assets after net inflows of $121.1 billion last year, nearly five times the $23.6 billion taken in by SPY. But Vanguard Group, overall, has become an asset magnet lately.
Vanguard Vacuums Up Inflows
According to the latest data from ETFGI, Vanguard’s $36 billion worth of January inflows represented 40% of the $90 billion that went into ETFs last month.
The next-closest firm was BlackRock's iShares, which took in $9.6 billion.
State Street Global Advisors, which launched SPY in 1993 as the first U.S. ETF, experienced $11.3 billion worth of net outflows in January.
But State Street sees silver linings in its lineup—even as SPY loses its crown.
“It speaks to the maturation of an industry where investors have so many different options to get exposure to broad market equity indexes,” said Matt Bartolini, head of SPDR Americas Research at State Street.
He points to the $60 billion SPDR Portfolio S&P 500 ETF (SPLG), which took in $20 billion last year and has already taken in $4 billion this year.
The Fight Has Only Just Begun
On a side-by-side comparison, VOO and SPY each have characteristics that make them viable ETFs for a long time to come.
SPY, which charges 9 basis points, has a liquidity advantage that is attractive to options traders and sophisticated investors.
“SPY is a unicorn of an ETF,” Bartolini said. “Last year it traded over $9 trillion in the secondary market; it’s used by a diverse range of clients with diverse motivations and buying behaviors.”
Meanwhile, at 3 basis points, VOO likely appeals to investors looking for low-cost broad market index exposure.
To that, Bartolini points to SPLG, which charges just 2 basis points.
“It’s great to be the biggest ETF in the world, but it only matters if your clients are happy,” he added.
Rising Above the Headwinds
Vanguard appears to be hitting on all cylinders following fee cuts to more than half its ETF lineup just last month. But even Vanguard might be facing a wall as an ETF issuer with just six active funds at a time when investor appetite shows a shift toward active strategies. Vanguard also stands out as one of the cryptocurrency ETF holdouts, essentially shutting the door on the most popular ETF category.