The SPDR S&P 500 Trust (SPY) ETF has continued to shed assets this year, making it the worst-performing in Wall Street. It has lost over $32 billion in assets, while the Vanguard S&P 500 (VOO) has added over $86 billion. BlackRock’s IVV ETF has added over $28 billion in assets.
SPY ETF has been overtaken by IVV and VOO
The ongoing SPY ETF outflows have jumped this year and have made it the third-biggest fund in Wall Street. It now has $677 billion in assets, while VOO and IVV have over $762 billion and $701 billion, respectively.
The main reason why SPY has been dethroned is that investors are preferring the cheaper funds. SPY has an expense ratio of 0.09%, meaning that a $100,000 investment will cost just $90 a year in fees.
On the other hand, a similar investment in VOO and IVV will only cost about $30 each. While a $60 difference for a fund with $100,000 in assets is a small one, investors don’t see the need to pay more. They are likely following Morningstar’s advice when it wrote:
“When it comes to fees, VOO charges 0.03%, while SPY charges 0.0945%. The difference may be minimal, but there’s no reason to leave cash on the table. With all else equal, the fund with the lower fee is more aligned with investors’ best interests.”
Another minor reason why investors are dumping the SPY ETF and moving to the VOO and IVV is that the former was launched as a unit investment trust.
This approach means that managers are prohibited from some basic operations like reinvesting dividends and also use derivatives to equitize cash. As such, investors are opting for the other funds to avoid SPY’s inefficiencies.
The SPY has also shed assets because of the Morningstar rating. While it tracks the S&P 500 Index, the company has given it a silver rating, while IVV and VOO are gold-rated.
S&P 500 Index ETFs have a major risk ahead
The top S&P 500 Index ETFs have had a strong performance in the past few years as investors have flocked to technology companies like NVIDIA, Broadcom, and Microsoft.
Therefore, there are concerns that these ETFs may crash once the so-called AI bubble pops in the coming months.
Some analysts and investors have started to warn that the AI industry is in a major bubble that could pop. One major issue is that OpenAI is driving the bubble through its circular investment deals.
For example, the company announced a major deal with AMD this week. As part of the deal, the company will take a stake in AMD, which will then supply thousands of GPUs to fund its operations.
The company also announced a major $100 billion deal with Nvidia, where it will purchase thousands of GPUs from the company. As such, these deals are likely creating an illusion of demand, where there is none.
Most importantly, OpenAI has now announced deals worth over $1 trillion, funds that it does not have. Also, it is unclear how the company plans to monetize and achieve a return on investment in the near and long time.
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