The SPDR S&P 500 ETF Trust (NYSE:SPY) has been the default S&P 500 vehicle since January 23, 1993, and its $9.8 billion-plus asset base reflects three decades of habit, deep options liquidity, and institutional inertia. SPY holders own it for a reason: it is the most-traded ETF on the planet, and for anyone running short-dated options or executing block trades, that liquidity is a genuine feature. But a quieter rival is about to hit a milestone SPY never will at current fees. The Vanguard S&P 500 ETF (NYSEARCA:VOO) holds $1.03 trillion in assets, making it the first ETF to cross the trillion-dollar mark, and it does so while charging SPY holders roughly one-third of the fee for the same 500 stocks.
Why SPY Still Has 30 Years of Momentum
The S&P 500 is what SPY tracks by holding the common stocks included in the index, with each stock’s weight substantially corresponding to its weight in the Index. Its top holdings mirror the benchmark exactly, led by NVIDIA at 7.58%, Apple at 6.66%, and Microsoft at 4.91%. For traders, the tight bid-ask spreads on SPY and the enormous open interest in options are irreplaceable. For long-term holders, though, those advantages do not show up on the account statement. What shows up is the fee, along with a structural quirk that most SPY owners have never had explained to them.
Where SPY Falls Short: A 9.45 Basis Point Ceiling
At 9.45 basis points, SPY’s expense ratio is 0.000945, while VOO charges just 3 basis points, at 0.0003. For a $100,000 position, that gap amounts to roughly $65 per year in fees, which compounds meaningfully over a 20- or 30-year holding period. The constraint for SPY is structural.
The fund is organized as a unit investment trust, a legacy 1993 wrapper that prevents it from reinvesting incoming dividends in index constituents between distribution dates, leaving cash idle. VOO, by contrast, is an open-end fund that reinvests immediately. In rising markets, that cash drag has historically cost SPY several basis points of tracking performance beyond what the headline fee gap would suggest.
The VOO Case, Measured
Both funds hold the same stocks in the same weights. VOO’s top slots match SPY’s within rounding: NVIDIA at 7.58%, Apple at 6.66%, Microsoft at 4.91%, Amazon at 3.64%. Over the last year, VOO returned 23.66%, and over five years 87.34%. The performance edge over SPY is small in any single year, but it is directional, and it compounds. VOO’s approach to the $1 trillion milestone reflects the market’s vote on fees.
The Cheaper Cousin From SPY’s Own Issuer
State Street knows the fee problem, which is why it launched the SPDR Portfolio S&P 500 ETF (NYSEARCA:SPYM). SPYM charges 0.02%, undercutting even VOO. It holds the identical top-10 lineup, led by NVIDIA at 7.57% and Apple at 6.66%, and delivered a one-year return of 23.66%. The catch: SPYM holds roughly $915.7 million in assets, a fraction of VOO’s scale, so spreads are wider, and options coverage is thin. For a buy-and-hold IRA position, SPYM is the cheapest S&P 500 wrapper available from a major issuer.
The Tradeoffs Nobody Advertises
Switching inside a tax-advantaged account is straightforward: sell SPY, buy VOO or SPYM, done. In a taxable account, embedded gains after a strong run (SPY’s five-year unadjusted price return is 74.6%) can trigger a capital gains bill that erases years of future fee savings. Options traders lose depth when going from SPY to either alternative. And SPYM’s smaller asset base means slightly higher trading friction on entry and exit.
What This Adds Up To
For a long-horizon holder in a retirement account, moving from SPY to VOO captures the fee gap and the dividend-reinvestment advantage with no meaningful loss. For the most cost-sensitive holders willing to accept thinner liquidity, SPYM is cheaper still. Active traders using SPY as an options underlying retain the liquidity and options-depth advantages of holding SPY. The reason to reconsider the position is the 9.45-basis-point ceiling on SPY, versus 3 basis points on VOO and 2 on SPYM.
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