To The Moon

ETF Giants Reshuffle: VOO Claims Top Spot, Is IVV Poised to Overtake SPY as the No. 2 ETF?

This week, $Vanguard S&P 500 ETF(VOO)$   surpassed State Street's $SPDR S&P 500 ETF Trust(SPY)$   as the world's largest exchange-traded fund, amassing $632 billion in assets under management (AUM). This marks the end of SPY's 31-year reign and underscores the power of low-cost investing in reshaping the $10 trillion ETF industry.

Fee-Driven Revolution: How VOO Outflanked the Traditional Giant

Although VOO was launched in 2010, 17 years after SPY, its ascent was no accident. VOO's winning strategy is its razor-thin 0.03% expense ratio, just one-third of SPY's 0.09% fee. This cost advantage proved irresistible to both retail and institutional investors, driving $23.6 billion in inflows to VOO over the past year, compared to SPY's $16 billion outflow.

"Vanguard's low-fee mantra, combined with its 'buy-and-hold' investor base, is an unbeatable combo," said Nate Geraci, President of ETF Store. "SPY remains the trader's tool, but VOO owns the long game."

Growth Trajectories Tell the Story

– AUM Milestones: VOO hit $1 trillion in 2018—11 years faster than SPY. By 2024, it surged past $500 billion and crossed $600 billion in early 2025, outpacing SPY's 2024 peak.

– Flow Momentum: VOO absorbed $100 billion in 2024 alone, double SPY's lifetime annual average.

Structural Advantages: Vanguard's Secret Sauce

Vanguard's unique "ETF-as-a-share-class" structure—approved exclusively by the SEC—allowed seamless conversion between mutual funds and ETFs, funneling $154 billion into VOO from legacy products since 2022. Meanwhile, State Street's attempt to counter its ultra-cheap SPLG (0.02% fee) has only attracted $25.8 billion in AUM.

"A 1-basis-point fee difference can't overcome Vanguard's ecosystem," noted Bryan Armour, Morningstar's Director of Passive Strategies. "They've locked in 85% of U.S. advisory networks."

Market Dynamics: Retail vs. Institutional Clash

While SPY dominates trading floors with a $300 billion daily volume—85% of S&P 500 ETF activity—VOO thrives on sticky, long-term capital. Only 40% of VOO holders are institutions, compared to 75% for BlackRock's IVV, the third-largest S&P 500 ETF.

"VOO is people's ETF," said Morningstar Senior Product Manager Syl Flood. "It's built for retirement accounts and dollar-cost averaging."

IVV Poised to Overtake SPY as the No. 2 ETF

With SPY just losing its top position to VOO, it may not hold onto second place for long. The $iShares Core S&P 500 ETF(IVV)$   is rapidly gaining ground and could surpass SPY to become the second-largest ETF by the end of this year.

Managed by BlackRock's iShares division, IVV also tracks the S&P 500 index and boasts a low expense ratio of just 0.03%, matching VOO in cost-effectiveness. With AUM now exceeding $609 billion, IVV appeals to cost-conscious investors prioritizing long-term growth.

According to etf.com data, IVV attracted $86.7 billion in inflows in 2024, compared to SPY's $16.5 billion. This trend suggests IVV could overtake SPY as the second-largest ETF before the end of 2025.

The Long-Term Impact of Fee Differences

To illustrate the importance of expense ratio differences, consider this simple investment model:

Assuming an initial investment of $100,000, an annual return of 7%, and a 30-year investment horizon:

1. VOO (0.03% expense ratio):Actual annual return = 7% - 0.03% = 6.97%Amount after 30 years = $100,000 * (1 + 0.0697)^30 = $750,684

2. SPY (0.09% expense ratio):Actual annual return = 7% - 0.09% = 6.91%Amount after 30 years = $100,000 * (1 + 0.0691)^30 = $735,866

3. IVV (0.03% expense ratio):Same as VOO, the amount after 30 years = $750,684

Difference: VOO/IVV outperforms SPY by $750,684 - $735,866 = $14,818

This means that a mere 0.06% difference in expense ratio results in nearly $15,000 more after 30 years, about 14.8% of the initial investment. This simple calculation demonstrates why investors are increasingly focused on expense ratios and why VOO and IVV have been able to rapidly catch up to and surpass SPY.

Other Notable ETF Giants

Besides the three major S&P 500 ETFs (VOO, SPY, and IVV), two other large-scale ETFs are worth noting:

1. $Vanguard Total Stock Market ETF(VTI)$   : With AUM exceeding $480 billion, VTI offers exposure to the entire U.S. stock market, including small and mid-cap stocks. Its low 0.03% expense ratio and comprehensive diversification make it a popular choice for investors seeking broad market exposure.

2. $Invesco QQQ(QQQ)$  : Managing $338 billion in assets, QQQ is a favorite among growth-oriented investors. It tracks the Nasdaq-100 Index, which is heavily weighted towards tech companies like Apple, Microsoft, and Amazon. Despite its higher 0.20% expense ratio, QQQ's strong historical returns and focus on high-growth sectors continue to attract a loyal investor base.

The Future of ETF Leadership

As ETFs grow in popularity, competition among the largest funds is likely to intensify. VOO surpassing SPY highlights the increasing emphasis on low costs and efficiency in modern investing. Meanwhile, IVV's steady climb underscores the importance of offering competitive expense ratios and performance advantages. Funds like VTI and QQQ also demonstrate the power of diversification and sector-specific strategies in shaping investor preferences.

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