The Changing Landscape of S&P 500 ETFs: Is SPDR Losing Its Edge?
Introduction
For decades, the SPDR S&P 500 ETF Trust, with its impressive $631 billion in assets, stood as a beacon in the world of exchange-traded funds (ETFs). Launched in 1993, it has maintained its position as the largest and oldest ETF in a field that now boasts thousands of funds with trillions in collective assets. However, a shift is on the horizon, as investing powerhouses Vanguard and iShares are poised to challenge SPDR’s reign in 2025.
Investor Preferences Shift
The differences among S&P 500 tracking vehicles seem negligible at first glance, yet they sit at the cornerstone of many stock-and-bond portfolios. Investors frequently hold these funds for years, if not decades, making careful selection crucial. Morningstar analyst Daniel Sotiroff concedes that while the SPDR offers “a pretty good deal,” it’s not necessarily the best option compared to the low-cost alternatives that Vanguard and iShares provide.
Penny Wise, Pound Foolish
At the heart of this shift in investor preference is a matter of cost. The SPDR comes with an expense ratio of 0.09%, relatively low but still higher than its competitors. Vanguard’s S&P 500 ETF and iShares Core S&P 500 ETF charge only 0.03%. In a world where every basis point counts, these differences accumulate substantially over time, eroding returns for SPDR investors. A decade’s worth of investments demonstrates this clearly: SPDR posted an average annual return of 13.01% from January 1, 2010, while Vanguard and iShares edged ahead with 13.06%, translating to a significant $1,900 difference on a $100,000 investment.
State Street’s Response
In recognition of the changing tides, State Street Global Advisors, the parent company of SPDR, has introduced the SPDR Portfolio S&P 500 ETF, which charges only 0.02%. This dual-ETF strategy aims to cater to all investor needs while maintaining their standing in the market. Matt Bartolini, head of SPDR Americas ETF Research, claims, “We’re a one-stop shop,” showcasing their commitment to offering diverse options.
Volume: A Different Kind of Advantage
While SPDR may soon lose its crown as the largest ETF by assets, it continues to dominate trading volume. With an average of nearly 48 million shares traded daily, it far surpasses the scant seven million shares traded for both Vanguard and iShares. For institutions and those involved in high-frequency trading, this liquidity is the name of the game, often overshadowing the relevance of lower fees. As financial advisor W. Michael Lofley points out, “If you are actively trading, SPY is the better choice,” emphasizing the practicalities of liquidity and bid-ask spreads.
Examining the Core: Do You Need an S&P 500 Fund?
Before locking in on an S&P 500 ETF, investors must first consider their broader market strategy. The S&P 500 only offers exposure to the 500 largest companies in the U.S., which means that savvy investors seeking comprehensive market coverage may need to branch out, adding mid-cap and small-cap funds to their portfolios. Broader funds, such as the Vanguard Total Stock Market Index Fund ETF or the iShares Core S&P Total U.S. Stock Market ETF, provide an all-inclusive approach, targeting the entirety of the U.S. equity market.
Conclusion: A New Chapter in ETF Investing
To summarize, the shifting landscape among S&P 500 ETFs illustrates a fundamental truth: as the investment world evolves, adaptation is essential. State Street’s SPDR has a venerable history, but its upcoming challenge from Vanguard and iShares illustrates the importance of a lower cost, deeper liquidity, and responsiveness to investor needs. As always, it’s prudent for investors to carefully weigh their options, assess their market exposure, and remain ever vigilant in the pursuit of maximizing their returns in today’s competitive environment.
With the Fed’s interest in inflationary control, the conservative principles that have guided investors since the dawn of capitalism continue to serve as a foundational strategy in building wealth through investing. After all, while shiny glimmers of choice can be tempting, one must always return to the principles of low cost and strategic investing for longstanding financial success.
