The SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and the Vanguard 500 Index (NYSEArca: VOO) are three of the biggest ETFs in the world and each, as their names imply, track the S&P 500.
Both IVV and VOO feature lower fees than SPY, which has helped propel growth for those products. In fact, IVV is the only other ETF in the world besides SPY that has over $100 billion in assets under management. Still, SPY remains a favorite of institutional and professional traders and earlier this month the ETF topped $300 billion in asset under management. SPY is also the preferred S&P 500 ETF among options traders.
“However, there’s one area where IVV still simply does not compete with SPY — specifically, in the realm of options,” said Schaeffer’s Investment Research. “Since we last checked in on IVV, its AUM has grown by roughly 50%, driven by approximately $32 billion in net inflows… but options open interest has actually dropped by about 16% from last February’s levels, to a meager 4,269 or so contracts. The top open interest strike, IVV’s February 275 call, carries open interest of just 303 contracts.”
SPY has become the market’s go-to investment vehicle for both core and tactical exposure, especially among large institutional traders who want to quickly and efficiently go in and out of the market – SPY is the only ETF traded with a bid-ask spread of just a penny for more than 12 consecutive years.
Since the start of the current bull market after the financial downturn wiped out a huge portion of investors’ wealth, the SPDR S&P 500 ETF has accumulated $172 billion in assets and outperformed 85% of active managers over the last 3-, 5- and 10-year periods, according to a State Street Global Advisors note.
Along with the growth and relative outperformance in passive indexing, SPY has enjoyed robust liquidity, with over 15 million shares of SPY now trading every hour. The S&P 500 ETF accounts for 27% of total ETF industry volume, or the equivalent volume of the next 14 largest ETFs combined.
“So why hasn’t IVV garnered the same type of swooning fanbase among options speculators as it has among ETF investors?,” according to Schaeffer’s. “There’s no big mystery here — it’s most likely because that seductively low expense ratio is as meaningless to those buying option premium as it is compelling to those buying into the fund directly. And with calls and puts on SPY already among the most heavily traded and liquid in the world, there’s not much motivation to go trolling through the thinly populated IVV options pits for a favorable offer.”
For more information on ETFs, visit our ETF 101 category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.