Vanguard S&P 500 ETF (VOO) Dethrones SPDR S&P 500 ETF Trust (SPY) as the Largest ETF by AUM

Differences in Expense Ratios

The most obvious factor driving the shift from SPY to VOO—especially for retail investors and financial advisors—is cost. VOO charges just 0.03%, making it one of the cheapest ways to own the S&P 500.

In contrast, SPY still carries a 0.0945% expense ratio—more than three times higher. While both are still cheap, when the underlying exposure is identical, there’s little incentive to stick with the more expensive option—unless you have substantial unrealized capital gains that would trigger taxes on a switch.

Vanguard has also been slashing expense ratios across more of its ETF lineup recently, reinforcing its reputation as a low-cost leader.

It’s worth noting that SSGA has tried to address this issue by cutting the expense ratio of its other S&P 500 ETF, the SPDR Portfolio S&P 500 ETF (SPLG), to just 0.02%—a direct attempt to stay competitive in the low-cost ETF race.

Lack of Cash Drag

This factor is less known to retail investors but is something advisors are likely familiar with—SPY uses an older ETF structure called a Unit Investment Trust (UIT).

A UIT is a type of investment fund that follows a fixed portfolio structure and doesn’t allow for reinvestment of dividends. This means that SPY cannot immediately reinvest dividends into the fund as they are received. Instead, dividends accumulate as cash until they are paid out to investors on a quarterly basis.

This delay creates cash drag, where a portion of the fund sits idle instead of being reinvested in the market. Over time, this can lead to slightly lower returns compared to ETFs that continuously reinvest dividends in between payout dates.

VOO and other modern ETFs don’t have this issue. They automatically reinvest dividends as they come in, helping to maintain full market exposure without the drag of uninvested cash.

Is There Any Hope for SPY?

Right now, SPY still has one major advantage over VOO, but only active traders will appreciate it—a more robust options market. Compared to VOO, SPY has:

• More strike prices available
• Higher open interest
• Daily expiration dates (0DTEs)
• Long-dated expiration dates (LEAPS)

You can’t really buy LEAPS on VOO or effectively execute a 0DTE options strategy, whereas SPY has no such limitations. For traders who rely on options liquidity and flexibility, SPY still holds a clear edge.

Until VOO gets these features (unlikely, given Vanguard’s philosophy), I expect SPY to remain relevant despite its higher expense ratio.

There’s always the possibility that SPY lowers its expense ratio, but that also seems unlikely. Doing so would cost SSGA a massive amount in lost revenue given SPY’s huge AUM.

My prediction? SSGA will focus on marketing SPLG as its cheaper alternative to VOO, rather than slashing fees on SPY itself.

This article is for informational purposes only and does not in any way constitute investment advice. The author may express their own opinions, which may not represent the opinions of ETF Central or its affiliated partners. It is essential that you seek advice from a registered financial professional prior to making any investment decisions.