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July 19, 2020, 8:32 a.m. EDT

Will Vanguard step on the SPDR? This technology ETF just dethroned the industry leader

Within the sector fund lineup, SPDR still has a hefty head start, but Vanguard is the 800-pound gorilla of overall asset management

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By Andrea Riquier

In mid-May, assets in the Vanguard Information Technology ETF /zigman2/quotes/207654339/composite VGT +2.19%   overtook those in a competing fund from the company that’s long dominated exchange-traded fund sector investing, the SPDR suite from State Street Global Advisors.

It was a small industry shift that perhaps only an ETF enthusiast would have noticed, yet it may speak volumes about how the investment-management world is evolving.

The Sector SPDRs were the first ETF products to track the S&P 500’s sectors — groupings of companies according to their business activities — and remain the industry giants, in large part because their scale enables institutional investors to use them to make big trades, said Todd Rosenbluth, head of ETF and mutual fund research for CFRA.

If Vanguard’s assets are catching up to State Street’s, it means one of two things, Rosenbluth told MarketWatch: either institutional investors are starting to get comfortable enough with Vanguard to rely on it as a trading tool — or that individual investors, who have traditionally comprised most of Vanguard’s customer base, are turning to “tactical” ETF strategies.

Vanguard cut its teeth in what the fund industry calls “core” products — simple index funds that track the overall S&P 500 /zigman2/quotes/210599714/realtime SPX +1.40% , for example. But individual investors are getting increasingly comfortable with exchange-traded funds, and increasingly using them to express more targeted views.

The attached chart shows 10 fund pairings of the currently existing 11 sectors. The 11th sector, real estate, was created in 2016; SPDR launched a fund to track the sector shortly before that. In contrast, Vanguard’s original sector lineup, which dates from 2004, has always included real estate. That fund has nearly $29 billion in assets, compared with $4.1 billion in the newer SPDR fund.

It’s only fair to point out that Vanguard’s footprint in the other sector funds remains quite small, compared against the corresponding SPDR funds. Next to real estate /zigman2/quotes/202931846/composite VNQ +1.01%   and technology /zigman2/quotes/207444675/composite XLK +2.27% , health care /zigman2/quotes/207621102/composite VHT +1.64%   is the sector in which it has the largest presence, and there, its assets are still less than half those of the SPDR fund.

But Vanguard’s explosive growth rate is a story unto itself. The firm, once considered a financial-services underdog, now has more assets under management than its next three competitors combined. That’s thanks largely to individual investors.

See: Three fund managers may soon control nearly half of all corporate voting power, researchers warn

/zigman2/quotes/207654339/composite
US : U.S.: NYSE Arca
$ 303.39
+6.51 +2.19%
Volume: 1.07M
Aug. 12, 2020 4:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,380.35
+46.66 +1.40%
Volume: 2.24B
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/zigman2/quotes/202931846/composite
US : U.S.: NYSE Arca
$ 82.15
+0.82 +1.01%
Volume: 2.24M
Aug. 12, 2020 4:00p
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/zigman2/quotes/207444675/composite
US : U.S.: NYSE Arca
$ 113.91
+2.53 +2.27%
Volume: 7.09M
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/zigman2/quotes/207621102/composite
US : U.S.: NYSE Arca
$ 205.51
+3.32 +1.64%
Volume: 128,339
Aug. 12, 2020 4:00p
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Andrea Riquier reports on housing and banking from MarketWatch's New York newsroom. Follow her on Twitter @ARiquier.

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