Vanguard's S&P 500 index-tracking exchange-traded fund, VOO, has become the first ETF to exceed the $1,000 billion mark in assets under management, according to the Financial Times. The fund hit this milestone on Wednesday after its assets grew fourfold since 2022.
VOO overtook the previous record-holder, State Street's rival SPY, last year. The fund's growth has been driven both by a strong equity market and steady inflows as investors seek exposure to companies tied to the recent artificial intelligence rally.
Fees and inflows
VOO operates with a very low total expense ratio (TER) of 0.03 percent, compared with SPY's fee of 0.0945 percent. More than $60 billion has flowed into VOO so far this year, illustrating how price-sensitive ETF investors are and how powerful a competitive advantage low fees can be.
Together with its mutual fund sibling, VOO now manages more than $1,600 billion in assets. Morningstar data place this combined structure as the world's second-largest fund, behind Vanguard's Total Stock Market fund, which manages about $2,200 billion.
Timing matters: big IPOs and faster index inclusion
The milestone is particularly notable given several large IPOs expected this year. Elon Musk's aerospace company, SpaceX, plans a market debut in June and aims to raise roughly $75 billion at a $1,750 billion valuation. Anthropic is preparing a listing valued at more than $1 trillion, and OpenAI — recently valued at $852 billion — is said to be preparing to file registration documents soon.
Thanks to faster index-inclusion rules being proposed by index providers, newly listed shares could enter major indices quicker than before. Following a market consultation, S&P Dow Jones Indices may shorten the mandatory waiting period for S&P 500 inclusion from one year to six months. Such a change would automatically create several billions of dollars of demand from passive index-tracking funds, which must buy the stocks once they are added to the index.
Rob Arnott, founder of Research Affiliates, said that despite concerns over stretched valuations he plans to participate in SpaceX's public offering. His rationale is that passive index funds will be forced to buy the shares after the IPO, and often at market prices driven up by demand rather than at the offering price.
ETF market competition
Analysts at Strategas Asset Management say the only ETF likely to challenge VOO in the future is BlackRock's IVV, helped by BlackRock's extensive model-portfolio business. Market dynamics and regulatory changes will together determine which funds emerge as leaders in the coming period.
This article does not constitute investment advice or a recommendation.
