This ETF King Continues To Lose Funds

Year-to-date, the largest exchange-traded fund by assets under management, the SPDR S&P 500 ETF (SPY), has seen an astonishingly large amount of money flow out of the fund.

Remind you; this is also when the S&P 500, and thus SPY itself, is up 7.09% year-to-date. That is important to note because it highlights that the fund does not necessarily see money leave the fund when the market is getting hit.

The SPY has over $372 billion in assets under management, making it the single largest ETF. SPY also holds the crown of being the most liquid, which may not mean much to the average investor, but that is very important to Wall Street professionals and prominent investment managers.

Liquidity is important because it means these investment managers can get in and out of positions with no genuine concern about whether or not there is a buyer or seller on the other side of their trade.

So how much money has SPY seen leave since the start of 2023? $9.43 billion!

Let that sink in and think about the fact that only about 150 Exchange-traded funds in the US have more than $9 billion in assets under management. That is 150 out of the 3,126 ETFs that investors have to pick from.

SPY lost more assets in three and a half months than nearly 3,000 funds have period.

Why is the money flowing out of SPY?

Unlike during other times when we see significant outflows of ETFs, so far in 2023, it has not been because the market is declining. Typically when the market is in a downturn, we see outflows occur as investors pull their money from risk assets and put it into reduced-risk assets. Think about pulling money out of stocks and putting it into bonds.

While an argument could be made that investors are preparing for an upcoming recession this summer, that argument is hard to support since the market is higher. We have not yet seen major economic data indicating that a recession is imminent.

The more likely reason money is flowing out of SPY at such an aggressive rate is the fee that SPY charges its investors. SPY charges a 0.09% expense ratio, which is extremely low by all means and measurements.

However, SPY is a simple S&P 500 Index fund like the Vanguard S&P 500 ETF (VOO) or the Ishares Core S&P 500 ETF (IVV). However, VOO and IVV only charge investors a 0.03% fee to invest their money.

The 0.09% SPY charges are much lower than the 0.65% or higher expense ratios we often see from actively managed ETFs. But, then again, the 0.09% SPY charges is three times more than the 0.03% the other S&P 500 ETFs currently charge.

All three funds do the same thing, track the S&P 500 index. So the question is why investors would pay three times as much for the SPY fund as opposed to VOO or IVV.

The only answer I can come up with is liquidity.

It is funny, though, that as more funds flow out of SPY and move toward VOO and IVV, SPY will also potentially lose its liquidity title.

And if SPY doesn’t hold the title for the largest ETF, doesn’t have the best liquidity, and isn’t the cheapest ETF in its sector, then why would any investor continue to use SPY as an investment vehicle?

Just something to think about if you have money in SPY.

Matt Thalman Contributor
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.