SPDR S&P 500 ETF (SPY) Celebrates 30-Year Anniversary

The history of SPY

Once upon a time, State Street Global Advisors (SSgA) saw the need for an accessible, transparent, and low-cost index product for retail and institutional advisors alike. 

While index mutual funds were starting to catch on thanks to the efforts of John "Jack" Bogle and Vanguard, there wasn't a viable exchange-traded variant at the time, asides from the short-lived index participation shares that were launched in 1989. 

SSgA wanted to create a new type of investment vehicle that would track the performance of a broad market index, such as the S&P 500, and could be easily bought and sold like a stock. This idea eventually led to the creation of the SPDR S&P 500 ETF, also known as the SPY.

On January 22nd, 1993, SPY started trading, heralding the start of a new era for ETFs. At first, the ETF was met with skepticism and uncertainty. Many investors were hesitant to invest in something that was so new and different. After all, Bogle's initial attempt at index mutual funds was ridiculed as "Bogle's Folly." 

However, as more people began to see the benefits of low costs, liquidity, and tax-efficiency, the ETF became more popular. Thanks to SSgA's first-mover advantage, SPY steadily grew in AUM, eventually morphing into the ETF titan we see today. 

As the years passed, SPY continued to gain popularity among both retail and institutional investors. It became a popular barometer for the performance of the U.S. stock market, and it was also used as a benchmark for other equity ETFs and actively managed funds.

And so, the story of the SPY ETF is a tale of innovation, perseverance and success that forever changed the investment landscape and opened the stock market to a whole new group of investors.

SPY in 2023

While other ETF providers eventually launched S&P 500 ETFs that came with lower expense ratios, SPY managed to maintain its market share, largely thanks to its economy of scale and liquidity. 

With an expense ratio of 0.0945%, SPY is hardly the cheapest S&P 500 ETF on the market. However, it beats the other ETFs on one notable dimension: its options chain.

Thanks to its high trading volume, SPY has one of the most developed options chains for any ETF on the market. Investors wishing to trade S&P 500 options can access a wide range of strike prices and expiration dates to help them customize their strategy. 

For buy-and-hold investors, SSgA eventually launched a cousin to SPY, the SPDR Portfolio S&P 500 ETF (SPLG). This ETF also tracks the S&P 500 index, but at a much lower expense ratio of just 0.03. 

Will SPY continue to be the most popular ETF for the foreseeable future? I think so. With 30 years in operation and over $327 billion in AUM, the momentum is clearly on SPY's side. It would take a monumental paradigm change or competitor to uproot its dominance. 

Then again, SPY's debut was exactly the sort of disruption that upheaved the fund management industry in the 1990s. Who knows if the next SPY is just around the corner?

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.