A major rotation is happening among exchange-traded funds tracking the S&P 500 Index.
The Vanguard S&P 500 Index (VOO) has continued soaring, while the other large funds are shedding billions of dollars in assets.
VOO ETF inflows are soaring this year
Data compiled by ETF shows that investors are piling into the popular Vanguard S&P 500 Index this year.
The fund added over $55 billion in assets this year, bringing that cumulative assets to over $862 billion.
It has added over $172 billion in the last 12 months, making it the biggest ETF in the industry. As such, chances are that the fund will bring its total assets to over $1 trillion later this year.
On the other hand, the popular SPDR SPY ETF has shed over $37 billion this year, while the iShares Core S&P 500 ETF (IVV) has lost over $51 billion.
The two funds now hold $664 billion and $686 billion in assets.
Meanwhile, the State Street SPDR Portfolio S&P 500 ETF (SPYM) has added over $21 billion in inflows this year, bringing the total assets to over $115 billion.
This performance is a sign that there is a rotation happening from the SPY to SPYM ETFs because of its cheaper expense ratio. It has an expense ratio of 0.02% compared with SPY’s 0.09%.
A rotation is also happening between the expensive SPY ETF to the cheaper VOO ETF, which has an expense ratio of 0.03%.
What is unclear, however, is why investors are selling the IVV ETF, which has a similar expense ratio with VOO.
It makes sense that investors are dumping the SPY ETF and moving to the popular VOO and SPYM ETFs. SPY’s expense ratio of 0.09% means that a $100,000 investment costs about $90. In contrast, a similar investment in the VOO and SPYM ETFs cost $30 and $20 a year, respectively.
These fees are negligible, with the fee spread between SPY and VOO being $60.
However, since these assets are similar, many investors are opting for the cheaper.
Indeed, this fee difference explains why VOO has a gold rating on Morningstar, while SPY has silver. In the justification, the analysts wrote:
“When it comes to fees, VOO charges 0.03%, while SPY charges 0.0945%. The difference may be minimal, but there’s no reason to leave cash on the table. With all else equal, the fund with the lower fee is more aligned with investors’ best interests.”
What next for the S&P 500 Index in 2026?
The inflows and outflows data in the S&P 500 Index ETFs comes at a time when it is in a freefall.
It dropped to $6,500 on Friday, its lowest level since September last year and 7.6% below its highest point this year.
S&P 500 Index has stumbled this year | Source: TradingView
Other blue-chip indices like the Nasdaq 100 and the Dow Jones also continued falling this year and are nearing moving into a correction.
This performance is happening as the Fear and Greed Index has dropped to the extreme fear zone of 15 amid the ongoing war in Iran that has pushed energy prices higher.
As a result, odds that the Federal Reserve will cut interest rates have dropped in the past few weeks.
As a result, US bond yields have continued rising, with the 10-year and 2-year yields moving to 4.42% and 3.95%, the highest level in months.
US stocks often come under pressure whenever bond yields are rising.
These fears explain why Wall Street analysts are changing their outlook for the S&P 500 Index. In a recent note, analysts at Goldman Sachs reduced their S&P 500 target to $7,600 from the previous estimate of $7,800.
Still, on the positive side, history shows the S&P 500 Index always emerges from corrections.
This will likely happen when there are signs that Donald Trump is about to end his war in Iran.
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