The world’s biggest exchange-traded fund is losing cash at a faster pace than any of its peers as investors seek lower fees amid a wave of cost cutting.

Traders have yanked US$33 billion from SPDR S&P 500 ETF Trust (SPY) so far this year, the most in the industry, according to data compiled by Bloomberg. While the exodus was concentrated in February and March, when the coronavirus pandemic roiled global markets, it put the US$294 billion fund tracking the U.S. stock benchmark at odds with the broader equity ETF universe -- which has lured US$119 billion in 2020.

As issuers race to slash costs, SPY’s relatively hefty expense-ratio could be one of the reasons limiting its rebound. The ETF carries a fee of 0.095 per cent that’s roughly triple the cost of investing in three of its largest competitors. That means investors who are re-entering the market may be gravitating toward cheaper options, according to analysts.

“As the market recovered, investors put that money back to work in lower-cost products,” said Nate Geraci, president of investment-advisory firm the ETF Store in Overland Park, Kansas. “My expectation is SPY will continue ‘bleeding’ assets, regardless of the market environment, as investors continue flocking to lower-fee competitors.”

While SPY is leading outflows, the US$162.8 billion Vanguard S&P 500 ETF (VOO) -- with its 0.03 per cent expense ratio -- has taken in US$23.3 billion in 2020, the most among its peers. Meanwhile, the lower-cost SPDR Portfolio S&P 500 ETF (SPLG), which has the same holdings as SPY but charges 0.03 per cent, has lured US$2.9 billion of new cash.

Vanguard Group, the second-largest issuer in the US$4.8 trillion ETF market, has vaulted ahead of its competitors, with US$148 billion worth of inflows in 2020. BlackRock Inc. and State Street Corp. have attracted US$79 billion and US$19 billion, respectively. While Vanguard’s flows have been boosted by the conversion of some its mutual-fund clients to lower-cost ETF shares, that process has only been responsible for US$22.8 billion worth of its inflows, according to Vanguard spokesman Freddy Martino.

“Former SPY money may not have gone back to SPY, but to lower-cost equivalents or to active, thematic or ESG funds,” said Linda Zhang, chief executive officer of New York-based Purview Investments, which specializes in active-ETF research and managed solutions. “It’s probably a combination of both.”

To Matt Bartolini of State Street Global Advisors, the money that left SPY during the height of the virus turmoil has rotated into sector-specific funds, such as State Street’s Energy Select Sector SPDR Fund (XLE). But with just one week until the U.S. presidential election, the flow picture could soon be upended once more, he said.

“A lot of those investors have migrated to other sectors of single-stock names,” said Bartolini, SSGA’s head of SPDR Americas Research. “Who knows what’s going to happen this election, but there’s definitely going to be money in motion.”