ETF competition: VOO vs. SPY

What happened: Vanguard's VOO and State Street's SPY, both S&P 500 ETFs, have seen a fee differential emerge, with VOO charging 0.03% annually compared to SPY's 0.09%. Over the past decade, VOO has outperformed SPY by 65%, returning 324% vs. SPY's 259%. Despite this, SPY remains more actively traded, appealing to active investors.

Market impact: The lower fee structure of VOO has driven its popularity among long-term investors seeking to maximize returns. This has led to a shift in market share, with VOO's assets under management (AUM) growing faster than SPY's. The fee differential compounds over time, translating into real dollar differences in returns. However, SPY's higher liquidity has maintained its appeal for active traders.

What to watch next: Investors should monitor the AUM growth of VOO vs. SPY to gauge the impact of fee differentials on investor preferences. Additionally, the next S&P 500 Index rebalancing in December 2022 will provide insight into how the ETFs' market share may shift. Lastly, a comparison of the ETFs' performance during market downturns will help assess their risk-return profiles.