If you own SPDR S&P 500 ETF Trust (NYSEARCA:SPY), you own the most heavily traded fund on the planet, launched in 1993 and holding $784.56 billion in assets. SPY delivers exactly what it promises: clean, liquid exposure to the 500 largest US companies, tight bid-ask spreads, and the deepest options market anywhere. The case for holding SPY is real. The case for holding it in a long-term account, though, has quietly weakened. A rival fund tracks the same index, holds the same names in nearly identical weights, and charges a fraction of the fee. That rival now holds more assets than SPY itself.
Why Investors Own SPY in the First Place
The reference implementation of S&P 500 exposure is this fund. Its top holdings mirror the index almost precisely: NVIDIA at 7.58%, Apple at 6.66%, Microsoft at 4.91%, Amazon at 3.64%, and Alphabet Class A at 2.99%. Over the past decade, SPY returned 244.05%, and it has delivered 10.76% average annual returns since inception in January 1993. Active traders and options writers rely on its liquidity for a reason.
Most SPY holders are long-term investors paying a legacy price for a legacy structure.
The Fee Gap That Compounds
SPY charges a 0.0945% expense ratio. iShares Core S&P 500 ETF (NYSEARCA:IVV) charges roughly 0.03%. That is roughly a third of SPY’s fee for the same index. On a $100,000 position, the direct savings run about $65 per year. The savings are modest in year one and meaningful over decades, since the money that stays in the fund keeps compounding.
The holdings here look almost identical to SPY’s: NVIDIA at 7.84%, Apple at 6.44%, Microsoft at 4.89%, Amazon at 4.19%, and Alphabet Class A at 3.62%. The tiny weight differences reflect the timing of the fact sheet snapshots, not a different strategy. Both funds hold every S&P 500 constituent in market-cap weight. IVV’s portfolio is essentially the same as SPY’s, just with a slightly different expense ratio.
Structure Matters More Than It Sounds
Built as a unit investment trust, this fund uses a 1993-era structure that legally cannot reinvest dividends between distribution dates or lend out securities to generate income. IVV, on the other hand, is an open-end fund that can do both. That structural difference shows up in the yield. SPY’s trailing yield sits at 1.02% against IVV’s 1.09%. The gap is small on paper, but it adds up meaningfully over years in a taxable or retirement account.
The performance history reflects the combined edge. Over the last year, SPY returned 18.85% while IVV returned 20.28%. Over five years, SPY delivered 69.89% versus IVV’s 82.42%. The comparison partly reflects differences in total-return methodology across the data sources, but the direction is consistent with the fee and structural gap.
The Quiet Flippening
Assets under management for IVV now sit near $833 billion, above SPY’s $784.56 billion. That crossover is a fun fact rather than a trading signal. It does suggest that institutional and long-term retail money has been quietly voting on which structure fits a buy-and-hold mandate. IVV’s growing asset base reflects its appeal for long-term investors seeking lower costs and greater flexibility.
When SPY Still Wins
For anyone trading around a position, including options writers, short-term traders, and institutions running large intraday flows, SPY holds a genuine edge. Its options market is the deepest available for S&P 500 exposure, and its penny-wide spreads matter when size moves through the book. For that reader, the fee difference is trivial next to execution quality.
Making the Switch Without Tripping a Tax Bill
Inside an IRA, 401(k), or Roth, swapping SPY for IVV carries no tax cost. The mechanics are straightforward: close the SPY position and open an IVV position of equal size. In a taxable brokerage account, selling SPY at a gain triggers capital gains. The fee savings of roughly $65 per year per $100,000 take time to outrun a large realized gain. A middle path: direct new contributions and reinvested dividends into IVV while leaving the existing SPY position in place. The blended cost drifts lower without a taxable event.
What This Adds Up To
For long-term S&P 500 exposure, IVV delivers the same holdings at roughly a third of the fee, with a slightly higher yield thanks to a more modern fund structure. For active traders and options users, SPY’s liquidity remains the reason to keep it. Most investors sit in the first camp and are paying for a feature they never use.
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