How SPY’s High Fee Erodes Long‑Term Returns

SPY’s 0.0945% annual fee is nearly five times higher than that of its sister fund SPYM, which holds the exact same 500 stocks at identical weights – a cost difference that can translate into thousands of dollars over a long‑term investment horizon.

Fee Structure and Expense Ratio

■SPY: net expense ratio 0.0945% (gross equals net)

■SPYM: 0.02%

■VOO: 0.03%

■On a $10,000 position the yearly cost is: SPY $9.45, SPYM $2.00, VOO $3.00

Holdings and Weight Distribution

■Both funds hold the same 500 securities with identical weightings

■Top‑10 holdings (SPY / SPYM):

- NVIDIA 7.58% / 7.57% - Apple 6.66% / 6.66% - Microsoft 4.91% / 4.91% - Amazon 3.64% / 3.64% - Alphabet Class A 2.99% / 2.99%

Structural Drawbacks: UIT vs Open‑End Design

■SPY operates as a Unit Investment Trust (UIT) since its 1993 launch

- A UIT cannot reinvest dividends internally; cash sits idle until quarterly distribution. Example: the June 18 2026 ex‑dividend date with payment on July 31 2026 creates a 44‑day lag where dividends earn no market return - No securities‑lending rebate flows to shareholders, whereas VOO, IVV and SPYM (open‑end structures) lend securities and pass the income back to investors

Long‑Term Impact and Portfolio Cost

■The 0.0745% annual fee gap (0.0945%-0.02%) on a $100,000 position amounts to roughly $74.5 per year

■Compounded over 20 years, this seemingly small difference drains several thousand dollars that would otherwise remain in the account

■Because the underlying exposure is identical, the extra fee buys only the liquidity advantage that active traders use; long‑term investors pay for a feature they never exploit

Ege Kaan: SPY’s legacy UIT structure imposes silent drags – uninvested dividends and the absence of securities‑lending revenue – that, while modest on a yearly basis, compound into a meaningful erosion of long‑term returns. For investors seeking core S&P 500 exposure, the rational choice is to bypass the premium‑priced SPY in favor of lower‑cost, open‑end alternatives such as SPYM or VOO, thereby preserving the full benefit of market returns over decades.