Latecomers first! Surpassing BlackRock, Vanguard's VOO becomes the world's second-largest ETF

In the fiercely competitive ETF market, a historic surpass is unfolding, with Vanguard's VOO set to become the strongest contender.

As of last Friday's close, Vanguard's S&P 500 ETF (VOO) has reached an asset size of $540.76 billion, successfully surpassing BlackRock's iShares Core S&P 500 ETF (IVV) at $540.66 billion, making it the second-largest ETF in the world. Just at the beginning of 2022, VOO lagged behind IVV by $58 billion.

VOO Becomes the Second-Largest ETF in the World, Poised to Top the Global Rankings

Currently, VOO is only $50 billion behind the world's first ETF and the largest ETF, the SPDR S&P 500 ETF Trust (SPY). In January 2022, this gap was $182 billion. Analysts predict that VOO's inflows will reach new highs and may soon surpass SPY, becoming the largest ETF in the world.

Bryan Armour, Morningstar's Director of North American Passive Strategies Research, stated, "VOO was launched ten years after IVV and has been catching up since its launch in 2010." In most years since then, VOO has attracted more new funds than IVV, including every year for the past four years. He anticipates:

“VOO will become the largest ETF in the world by 2025 or at the latest by 2026. VOO is expected to break the record for annual fund inflows, with inflows reaching $85 billion so far this year.”

In contrast, SPY has seen outflows of $5 billion, and the gap between the two has narrowed by 2024. If this trend continues, VOO will easily take the top spot in 2025.

Low Annual Fees, Investor Favor... VOO's Buffs Are Stacked

SPY has an annual fee of 9 basis points, while both VOO and IVV charge an annual fee of 3 basis points, primarily targeting retail investors and other long-term investors, benefiting from the expanding ETF market. According to consulting firm ETFGI, ETF assets in the U.S. recently surpassed $10 trillion, nearly double that of four years ago.

Last year, State Street Global Advisors attempted to counter with a "low-price war," reducing the fees of its long-held SPDR Portfolio S&P 500 ETF (SPLG) to 2 basis points, but so far, it has only accumulated $49 billion.

From a fee perspective, Nate Geraci, president of financial advisory firm The ETF Store, believes:

“It’s only a matter of time before VOO and IVV catch up to SPY. Investors continue to funnel money into S&P 500 index ETFs, and they are closely watching the price tags.”

In fact, as early as September, VOO briefly surpassed IVV for four days but failed to maintain its lead. This time, analysts are confident that VOO will maintain its lead, attributing VOO's rise to differing perceptions of the two largest asset management companies in the world He believes that "Vanguard's focus on low-cost market returns may be the reason investors choose VOO over IVV."

Todd Rosenbluth, head of research at TMX VettaFi, stated that "the recent surge in retail investor acceptance of ETFs has helped Vanguard gain market share, with many investors building portfolios using only Vanguard ETFs."

Analysis indicates that VOO's success demonstrates Vanguard's broader advantage in the ETF space and marks Vanguard's rapid rise in the ETF field. As of the end of September, its $315 billion in ETF assets accounted for 74.7% of BlackRock's $422 billion assets, a figure that has steadily risen from 51.9% at the beginning of 2018.

The analysis suggests that with the continued development of U.S. ETFs, both VOO and IVV are expected to benefit further. Rosenbluth said:

"iShares and Vanguard both offer low-cost, highly liquid ETFs that support asset allocation purposes, and we expect the asset bases of both to continue to climb by 2025."