Billions Are Flowing Into SPY While IVV Bleeds

Billions Are Flowing Into SPY While IVV Bleeds—Same Index, Different Story

ETF investors have been showing plenty of love for the S&P 500, but it seems like not all S&P 500 ETFs are created equal in their eyes.

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Even as they followed the same index, the SPDR S&P 500 ETF Trust (NYSE:SPY) collected a robust $1.45 billion in net inflows in the week through July 25, based on FactSet figures. In contrast, the iShares Core S&P 500 ETF (NYSE:IVV) saw its assets decline by $2.1 billion.

On the surface, that’s a puzzler. SPY and IVV are among the largest, most liquid ETFs out there, each designed for one straightforward task: replicating the S&P 500. So why are investors pouring into one but not the other?

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Tactical Traders Vs Strategic Investors

The split may be about who’s trading these ETFs and why.

SPY, which started in 1993 and is sponsored by State Street, is the “OG” ETF. It’s the favorite among institutional investors, traders, and option players due to its incredibly tight bid-ask spreads and highly liquid options market. When markets become frothy, as they did the week ended July 25, when the S&P 500 and Nasdaq-100 reached new highs, SPY tends to be the tactical vehicle of choice.

IVV, meanwhile, is more of a workhorse for the long haul. Institutional allocators and financial advisors prefer it for its lower expense ratio and long-term effectiveness. If money flows out of IVV, it doesn’t necessarily mean investors are shorting the S&P 500. More likely, it might be due to rebalancing, tax-harvesting, or even rebalancing into separately managed accounts that mirror the same index.

Zooming Out: Still Bullish On Equities

What’s noteworthy is that this IVV outflow is not part of a larger exodus from equities. As it turns out, U.S. equity ETFs collected $11.9 billion in inflows the week in question, according to FactSet. Vanguard’s S&P 500 ETF (NYSE:VOO), yet another inexpensive, passive S&P tracker, led the pack with a $2.4 billion drawdown. That implies long-term investors are still crowding into the index, if only temporarily at IVV.

So, What Does This Mean For Investors?

Unless you’re interested in reading tea leaves on institutional sentiment, the SPY vs. IVV divide is probably more technical than emotional. SPY’s inflows are likely short-term positioning or hedging. IVV’s outflows might be a result of portfolio housekeeping, not panic.

That said, it’s a reminder that in the world of ETFs, flow data is not always a popularity contest, it’s simply a reflection of how and why various investors utilize the same tools.