SPY, IVV, VOO Battle for Top ETF Crown Amid S&P 500 Swings

The S&P 500 experienced significant fluctuations following Trump’s sweeping tariff announcement on April 2. The benchmark tumbled more than 10% in the final two trading days of the last week, erasing nearly $5 trillion in market value, marking its most significant two-day loss since March 2020 (the onset of the COVID-19 pandemic).

The index saw a dramatic intraday swing yesterday, with the range between the day’s high and low being the widest — on a percentage basis — since the “flash crash” of 2010. The index reached an intraday high of 5,246.57 and a low of 4,835.04. Relative to the closing price of 5,062.25, the range represents a swing of 8.13%. Yesterday, the S&P 500 ended the day down about 0.2% before a sudden plunge of as much as 8.6% intraday at its low.

The index is now trading at levels seen roughly a year ago, reflecting widespread concerns about the impact of the tariffs on the United States and global economies (read: 5 ETFs Withstanding the Biggest Market Drop Since 2020).

The S&P 500’s recent pullback has helped ease some of the excess from its valuation. According to FactSet, the index is now trading at a forward price-to-earnings ratio of 19.4 —below its 5-year average of 19.9 and closer to the 10-year average of 18.3. That’s a notable drop from 22.2 in February. While the S&P 500 still is not cheap, it has returned to the 18-20 P/E range, historically associated with flat one-year returns rather than losses.

Given the attractive valuation of the index, investors are flocking to ETFs that track the S&P 500 Index to tap the beaten-down prices. This has put the three popular ETFs — SPDR S&P 500 ETF Trust SPY, iShares Core S&P 500 ETF IVV and Vanguard S&P 500 ETF VOO — in a tight race to battle for AUM supremacy. 

S&P 500 ETFs in Tug-Of-War

In mid-February, Vanguard’s VOO surpassed SPY to become the world’s largest ETF, marking a major shift in investor preference. The reshuffling continued in March when BlackRock’s IVV overtook SPY as well, relegating the once-dominant ETF to third place. SPY had held the top position right from its introduction as the first U.S.-listed exchange-traded fund in 1993. VOO currently has an AUM of $571.4 billion while IVV and SPY have AUM of $560.4 billion and $544.8 billion, respectively (read: ETF Investors Crown a New King).

While all three ETFs look similar in terms of the holdings breakdown, with Microsoft MSFT, Apple AAPL and NVIDIA NVDA taking the top three spots, there are a few key differences between them. We have spotted the differences below: 

Expense Ratio

SPY is the most actively traded ETF with an average daily volume of around 51 billion and a 0.09% expense ratio. On the other hand, VOO and IVV are less liquid, trading in average daily volumes of 5.5 billion and 4.7 billion, respectively, which ensures some additional cost in the form of marginal bid/ask spread. However, both ETFs cost just 3 bps in annual fees each, 67% less than the State Street product. 

Growing Assets

Vanguard’s product has gathered $2 billion over the past five days and $36.8 billion so far this year. iShares’ product pulled in $3.2 billion in capital in the past five days and $24.6 billion this year. Meanwhile, State Street’s ETF saw massive outflows of $12.3 billion and $29.4 billion, respectively, in the past five days and so far this year.

Structure

Being the oldest U.S. equity ETF, SPY is structured as a Unit Investment Trust (UIT), with State Street serving as the trustee. It is therefore not allowed to reinvest dividends paid by underlying holdings but must hold them in cash until they are scheduled to be distributed to SPY shareholders. Additionally, SPY does not lend out securities from its portfolio to earn extra money.

Meanwhile, VOO and IVV do not have such restrictions and can lend out shares to earn extra. They also reinvest dividends in the index until paid out quarterly, thereby increasing returns from the fund.

Tax Efficiency

IVV and VOO tend to be more tax-efficient, thanks to the open-end structure and in-kind creation/redemption mechanisms. On the other hand, SPY is less efficient because it can’t do in-kind redemptions as flexibly due to its UIT structure.

Bottom Line

A low fee, better tax structure, and dividend reinvestment option make VOO and IVV attractive to investors, while high trading volume makes SPY enticing as it is easy to buy and sell large amounts of SPY without incurring extra costs.

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This article originally published on Zacks Investment Research (zacks.com).

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