The popular SPDR S&P 500 ETF (SPY) soared to a record high on Monday as investors piled into stocks amid the ongoing stock bull run. The fund jumped to a high of $565, meaning that it has jumped by more than 175% from its lowest point in 2020.
SPY to be passed by IVV and VOO
The SPY ETF is at an elevated risk of being passed by the Vanguard S&P 500 (VOO) and the iShares S&P 500 ETF (IVV) in terms of assets.
Data by Morningstar shows that the SPY fund has over $558 billion in assets while the IVV has over $506 billion. VOO has $489 billion in assets.
Eric Balchunas, who covers ETFs for Bloomberg, said that the IVV fund added over $17 billion in assets in the last month. It remains about $55 billion away from doing that. He also expects that VOO and IVV will pass the SPY fund later this year.
Still, despite these trends, the SPY ETF beats the IVV and VOO in terms of daily volume and is one of the most active funds in the market.
SPY is more expensive than VOO and IVV
The most likely reason for these trends is that investors are more concerned about their fees. SPY charges an expense ratio of 0.09% while VOO and IVV have a ratio of just 0.03%.
While this is a tiny spread, the fees can add up over the years since many passive investors hold their funds for decades. For example, all factors constant, a $100k investment in SPY will cost $90 in a year to manage while a similar investment in IVV and VOO will cost $30.
In 30 years, the $90 annual fee will be worth $2,700 while the $30 will be just $900. Therefore, since these funds track the same asset, it makes sense to invest in cheaper ones. This is in line with what analysts at Morningstar wrote when they compared VOO and SPY. They wrote:
“VOO earns a top rating of Gold, while SPY earns the next best rating of Silver. The reason is fees and inefficiencies of the unit investment trust structure. The differences may be minimal, but there’s no reason to leave change on the table.”
As shown below, SPY’s total return in the past five years stood at 101.5% while VOO and IVV returned over 102%.
SPY vs VOO vs IVV ETFs
SPY, IVV, and VOO stocks are bullish but risks remain
As I wrote recently in my S&P 500 index forecast, it has numerous catalysts. The Fed is expected to start cutting interest rates soon, earnings look good, and the rising odds of a Trump victory should be positive for equities.
The Federal Reserve is expected to start cutting interest rates as soon as in September while FactSet expects earnings growth will be over 8%. Fed rate cuts will be positive for stocks as it will see risk-averse investors move from money market funds to equities.
Most importantly, while US stocks experience some sharp drawdowns, the overall trend in the past decades has been positive.
However, technically speaking, there is a likelihood that the three ETFs will pull back in the coming weeks. Besides, oscillators like the Relative Strength Index (RSI) and the Stochastic Oscillator have moved to an overbought level.
Also, the ETFs have formed what looks like a rising wedge chart pattern, a popular reversal sign.
Fundamentally, the S&P 500 index is overvalued, with a forward P/E ratio sitting at 21, higher than the five-year average of 19.
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