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Vanguard’s S&P 500 ETF (VOO) has become the world’s largest exchange-traded fund after $121.1 billion in inflows this past year, taking the top position from the SPDR S&P 500 ETF Trust (SPY), heralding a major shift in passive investing.
State Street's SPY, the oldest US ETF and an industry bellwether since its 1993 introduction, had steadily been losing market share to VOO over the past year, despite SPY's 17-year head start. VOO's assets under management stood at $631.8 as of Tuesday, with State Street Corp.'s SPY at $630.3, according to Bloomberg data.
VOO grabbed the top spot after investors pulled $9.5 billion from SPY over the past month. VOO's annual inflows were more than five times as great as SPY's at $23.6 billion as of Tuesday, etf.com data show.
While SPY was heralded as innovative when issued and served as a template for dozens of copies, Vanguard's S&P 500 index fund has taken the top spot primarily because it's cheaper. VOO charges a 0.03% expense ratio, two-thirds lower than SPY’s 0.09% fee, and that appealed to retail investors' preference for low-cost, buy-and-hold strategies over the trading flexibility that traditionally made SPY popular with institutional investors.
Investors $870 to VOO in the past week, pushing it past SPY’s $630.3 billion in assets, according to etf.com data.
VOO Opens Chapter in ETF History
The shift isn't the first time SPY was knocked from its perch at the top. In August 2011, the SPDR Gold Trust (GLD) briefly overtook SPY as the world’s largest, holding $76.7 billion in assets compared to SPY’s $74.4 billion during a period of heightened economic uncertainty, according to a Barron's article published at the time.
VOO and SPY differ structurally: VOO is an open-ended fund with the flexibility to reinvest dividends immediately, while SPY’s unit-investment trust structure requires it to hold dividends in cash until distribution.
Despite losing its crown, SPY maintains advantages for certain investors, particularly in trading volume and liquidity. According to etf.com data, the fund sees an average daily training volume of over $261.2 billion compared to $48.3 billion for VOO, making it a preferred choice for institutional investors and active traders.
Blackrock’s iShares Core S&P 500 ETF (IVV) remains not far behind in the No.3 position. It holds $609 billion in assets per etf.com data and matches VOO’s 0.03% expense ratio, indicating the battle for ETF market leadership continues.
Editor's note: This story has been updated to clarify that SPY is the oldest U.S. ETF.