State Street’s flagship S&P 500 exchange traded fund is on track to post the largest annual outflows of any such fund in history, underscoring the changes sweeping through an ETF industry gripped by cut-throat competition for cost-conscious investors.
Investors have pulled $32.7bn from the SPDR S&P 500 ETF Trust, widely known by its ticker SPY, so far this year.
The wave of selling has come even with the S&P 500 soaring 15 per cent in 2025 in the latest blow to the fund, which lost its crown as the world’s largest ETF earlier this year when it was usurped by Vanguard’s rival S&P 500 fund, known as VOO.
Vanguard’s fund and other rivals to SPY have been boosted by the growing “retailisation” of the US’s $12.2tn ETF market, increasingly dominated by small investors focused on hunting down the lowest fees.
This has undermined SPY, which is more expensive than its rivals and has long been favoured by institutional investors, drawn to it over the years by its market liquidity, making it easy to trade, and by an unparalleled ecosystem of derivative products that has built up around it.
“There are cheaper options available”, said Bryan Armour, director of passive strategies research for North America at Morningstar. “As [SPY’s rivals] continue to grow assets and investor interest, it also depletes some of what makes SPY what SPY was. It was so much bigger than any other ETF.”
Investors in search of liquidity, he added, have other options not only in Vanguard’s VOO but also the iShares Core S&P 500 ETF (IVV), provided by BlackRock, the world’s biggest asset manager, where “there tends to be more two-way flow”.
SPY’s outflows come even as the S&P 500 has hit repeated record highs this year, fuelling booming demand for funds that track it.
VOO now holds $734bn of assets, comfortably ahead of SPY’s $683bn. SPY has also been overtaken by BlackRock’s IVV, which holds $703bn.
This year, VOO has attracted a net $84.5bn and IVV, $30.4bn. In contrast, SPY’s $32.7bn net outflows are more than any ETF has leaked in a calendar year, with three months still to go.
State Street’s fund, the first US ETF when it launched in 1993, is suffering from its relatively high fees in a world of increasingly fierce competition between the industry’s heavyweights.
VOO and IVV both levy an annual fee of just 0.03 per cent, far below SPY’s 0.0945 per cent.
State Street launched its own bargain basement SPDR Portfolio S&P 500 ETF (SPLG) in 2005 with a fee of just 0.02 per cent. It only now appears to be hitting critical mass, with $24bn of net inflows so far this year taking its assets to $87bn.
SPY has long been the go-to vehicle for institutional investors and other active traders given the web of derivatives, such as options and swaps, developed by investors seeking to hedge their exposures. Thanks to its abundant liquidity, it typically has the lowest trading costs and tightest bid-offer spreads.
Its appeal to professional investors endures. Matthew Bartolini, global head of research strategists at State Street Investment Management, said SPY remained the most heavily used ETF in terms of trading volume.
“Around geopolitical events, investors are demanding liquidity [via SPY],” he said.
But this appeal is of diminishing significance. The US ETF market is becoming increasingly dominated by retail investors who, particularly if they are mom and pop “buy-and-hold” types, care more about having the lowest ongoing costs than about SPY’s bells and whistles. They are increasingly turning to ETFs rather than traditional, higher-cost mutual funds.
As of July, retail investors accounted for a record 75 per cent of US ETF assets, up from 56 per cent a decade ago, according to data from Broadridge Global Market Intelligence, representing a sevenfold increase in their assets to $8.8tn.
“Everywhere you turn, whether it is usage or flows or assets and model portfolios, ETFs are the neon lights” for retail investors, said Andrew Guillette, vice-president for global insights at Broadridge.
Guillette saw no sign of this tide of retail money into ETFs ending any time soon. Broadridge research found that 43 per cent of financial advisers intended to “replace all or most of the mutual funds [in their clients’ portfolios] with ETFs, within the next three years in most cases”, he said.
Nate Geraci, president of NovaDius Wealth Management, said SPY might have been particularly exposed during the “tariff tantrum” sell-off in April to tax-loss harvesting, in which investors facing tax payments on trading profits aim to reduce their liabilities by selling out of lossmaking positions.
“SPY typically sees more volatile activity due to its trading-focused user base, while VOO steadily attracts long-term capital,” Geraci said. “VOO will continue to take in money — neither snow nor rain nor heat nor gloom of night [can stop it].”
If SPY’s outflows continue, 2025 will not be its first record-breaking year. In 2015, it leaked $32.3bn, according to VettaFi, the biggest net annual outflows for an ETF at the time. But 2015 was a year in which the S&P 500 fell. This year, SPY is on track to beat its own record outflows in a strongly rising market.
Armour at Morningstar saw few reasons to expect SPY to regain its pre-eminence.
“VOO was created 17 years after SPY and it has already caught up with it,” he said. “When people think S&P 500, they are thinking VOO now more than anyone else. I would expect [VOO] to take more and more market share.”
Data visualisation by Ray Douglas