S&P 500 ETF face-to-face: SPY vs. IVV
The S&P 500 exited the bear market, gaining nearly 23% from its March 23 low, although volatility remained high. According to Bespoke Investment Group, stock market volatility from the coronavirus has resulted in the largest daily price swings since the crash of 1929, with the S&P 500 Index having experienced a historical average daily price change of 4.8% over the five last few weeks.
The latest gain came amid signs of stabilizing coronavirus infections, indicating that social distancing and home-keeping initiatives are helping control the spread of the virus. According to the new report from the Institute for Health Metrics and Evaluation at the University of Washington, the estimated number of deaths from the coronavirus pandemic in the United States has been reduced by 26%, from 82,000 to 60,000 in over the next four months. Hospitalizations linked to the COVID-19 pandemic are starting to level off in some of the hardest-hit regions of the country (read: 5 sector ETFs at Forefront of Wall Street Rally).
Moreover, the suspension of the presidential campaign of Senator Bernie Sanders added to the force. In addition, the surge in oil prices in hopes of a truce in the Saudi-Russian oil price war and the purchase of crude by China also led to the spike in inventories. The latest developments indicate that the fundamentals are slowly improving, paving the way for a bullish stock market.
Apart from that, big fiscal and monetary stimulus are expected to stimulate the economy, which will benefit stocks. The House of Representatives has approved a landmark $ 2.2 trillion stimulus package to save the coronavirus-ravaged economy. After cutting interest rates to near zero and offering to buy more government bonds and mortgage-backed securities as needed to support the proper functioning of the market, the Fed pledged to lend against student loans and credit card loans, as well as to support the purchase of corporate bonds and direct loans to businesses. This is the most extreme intervention by the central bank in the economy in its 100-year history (read: ETFs up for grabs as the Wall Street Cheers US Stimulus Package).
As such, investors seek to mine the index as an ETF. The two ultra-popular ETFs targeting the S&P 500 – SPDR S&P 500 ETF Trust ESPION and iShares Core S&P 500 ETF IVV – have gained more than 11% in one week and have a Zacks ETF Rank # 2 (Buy) with a medium risk outlook.
Both ETFs saw asset inflows start this month. This is especially true as SPY has been the primary creator of assets, having accumulated over $ 5.1 billion while IVV has withdrawn $ 787 million in capital so far in April. However, since the start of the year, SPY has led the buyback list, with outflows of $ 8.2 billion while IVV has amassed $ 4.8 billion in its assets (see: all Large Cap ETFs here).
While SPY and IVV are similar in terms of asset allocation, with Microsoft MSFT and Apple AAPL occupying the top two spots, there are a few key differences between them. We’ve spotted the differences below:
SPY is the most actively traded ETF with an average daily volume of around 108.7 billion and an expense ratio of 0.09%. On the other hand, IVV is less liquid, trading at an average daily volume of 6.2 billion, which provides an additional cost in the form of a marginal bid / ask spread. However, the iShares version only costs 4 basis points in annual fees, which is 55% less than the State Street product.
Although IVV with assets under management of $ 168.5 billion is well below SPY of $ 249 billion, it has grown its asset base faster if history is to be trusted. This is all the more true as SPY lost around $ 2 billion and $ 16.5 billion of its asset base in 2019 and 2018, respectively, against respective capital inflows of $ 8.6 billion and $ 18.5 billion for IVV, by etf.com. In 2017, IVV is the leading asset accumulator, having collected $ 30.2 billion in assets under management while SPY only raised $ 10.6 billion (read: Guide to the 10 most traded ETFs) .
Being the oldest US equity ETF, SPY is structured as a Unit Investment Trust (UIT) with State Street as a trustee. It is therefore not authorized to reinvest dividends paid by the underlying holdings but must hold them in cash until they are distributed to the shareholders of SPY. In addition, SPY does not lend securities from its portfolio to earn extra money. Meanwhile, iShares S&P 500 ETF has no such restriction and can lend shares to earn more. IVV also reinvests dividends in the index until they are paid quarterly, thereby increasing the returns of the fund.
A low fee and dividend reinvestment option makes IVV attractive to investors, while the high trading volume makes SPY attractive because it is easy to buy and sell large amounts of SPY without incurring additional fees.
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