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Feb 14, 2020

Simultaneous mega ETF trades hint at S&P 500 index funds switch

Stock information is projected on a glass panel as a European Union (EU) flag hangs in the lobby of the Euronext Paris stock exchange in La Defense business district of Paris, France, on Wednesday, Jan. 16, 2019. European investors shook off the rejection of U.K. Prime Minister Theresa May’s Brexit deal in parliament ahead of a confidence vote, opening higher after mixed markets in Asia, and gains in the U.S.

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Investors seeking exposure to the S&P 500 may be dumping one long-favored exchange-traded fund for its cheaper sibling.

State Street Corp.’s SPDR Portfolio S&P 500 ETF, ticker SPLG, gained US$662 million on Thursday, its biggest one-day inflow on record, according to data compiled by Bloomberg.

The money could be coming at the expense of the legendary SPDR S&P 500 ETF Trust, or SPY, which has a higher expense ratio at 0.095 per cent than SPLG at 0.03 per cent. Last month, State Street changed SPLG’s underlying benchmark to the S&P 500 Index instead of its previous SSGA Large Cap Index. That means investors can get a similar exposure as SPY but at a lower cost.

About US$657 million worth of SPLG shares hit the tape at 3:49 p.m. in New York Thursday. At the same time, US$422 million worth of SPY shares were traded.

The flows represent a bigger quandary that issuers in the US$4.7 trillion industry are grappling with as a fee war continues: the risk that decreasing the cost of one fund could take away flows from a pricer product. For example, BlackRock Inc.’s iShares Broad USD High Yield Corporate Bond ETF pulled in US$1.4 billion this year while its similar, yet pricer, fund the iShares iBoxx High Yield Corporate Bond ETF lost US$830 million.

“While SPY still has an edge for higher trading volume and tighter bid/ask spreads, for buy-and-long-term-hold investors SPLG makes a lot of sense,” said Todd Rosenbluth, CFRA Research’s New York-based director of ETF research.

FUND'S BIGGEST HOLDINGS AS OF FEB. 13

 
Name Ticker Position Value (USD) Change in Position % of Total Asset Value
Microsoft Corp. MSFT US Equity 1.1 million 202.2 million 4,328 5
Apple Inc. AAPL US Equity 602,713 195.8 million 2,368 4.8
Amazon.com Inc. AMZN US Equity 59,988 129 million 240 3.2
Facebook Inc. FB US Equity 347,060 74 million 1,368 1.8
Alphabet Inc. GOOGL US Equity 43,221 65.4 million 168 1.6
Alphabet Inc. GOOG US Equity 43,060 65.2 million 168 1.6
Berkshire Hathaway Inc. BRK/B US Equity 282,222 63.9 million 1,112 1.6
JPMorgan Chase & Co. JPM US Equity 452,417 62.4 million 1,776 1.5
Johnson & Johnson JNJ US Equity 379,516 57 million 1,488 1.4
Visa Inc. V US Equity 246,887 51.2 million 968 1.3