Vanguard Took the ETF Asset Crown. Here’s Why It Matters
The changing of the guard is proof that retail and advised clients, with much longer time horizons, are prioritizing low-cost passive funds.
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State Street’s SPDR S&P 500 ETF Trust began its remarkable three-decades long run as the world’s largest exchange-traded fund back in 1993 when The X Files topped Nielsen ratings and MTV’s The Real World was “all that … and a bag of chips.”
Fast forward to today and there’s a new king. Vanguard’s S&P 500 ETF (VOO) finally cemented itself as the undisputed ETF heavyweight topping $632 billion in assets this week, thanks to a record-shattering $116 billion pulled in last year, according to Bloomberg. Now, the Malvern, Pennsylvania company is eyeing BlackRock’s crown as the world’s largest asset manager, and could potentially close the $157 billion gap this year, said Aniket Ullal, head of ETF Research at CFRA. It’s proof that Vanguard’s commitment to low-cost investing is becoming just as popular as Beanie Babies were in the ‘90s.
“Vanguard continues to dominate mindshare,” Ullal told The Advisor Upside. “VOO’s success isn’t just driven by fees, but also by strong brand awareness.”
A-Van Guard
While SPY charges a bargain-basement price of just 0.095% per year to track the S&P 500, VOO’s fee is just 0.03%. Vanguard even doubled down on cost-cutting this month with the largest fee reductions in its 50-year history:
- Equity ETFs now charge roughly five basis points, while fixed income products clock in at just four basis points.
- Almost nine in 10 Vanguard funds are in the lowest-cost decile of their Morningstar categories.
Still, State Street offers a similar S&P 500 fund SPLG that’s priced at 0.02%, less than VOO. Once fees get that low, other factors like brand awareness and distribution become equally important, Ullal said. It’s a strategy Vanguard is taking into new segments. The company launched two active muni-bond ETFs in November with more potentially on the way.
“This is a major milestone for Vanguard and the ETF industry,” said Todd Rosenbluth, head of research at VettaFi.
I, Spy. Hats off to SPY for an unforgettable run. It’s not only the oldest ETF still in existence, but will remain the default fund for the vast majority of institutional investors with its low bid-ask spreads and high trading volumes. With much longer time horizons, clients are simply favoring lower costs. “Much like Babe Ruth, whose records were broken, SPY will remain in the minds of many as a legend,” Rosenbluth said.
Just like Mulder and Scully.
