*

On Friday, SPY had $633.1 bln in assets vs Vanguard ETF's

$631.8

bln

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Retail investors and advisors seek lower fees from

Vanguard

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State Street's SPY remains dominant S&P 500 trading

vehicle

By Suzanne McGee

Feb 18 (Reuters) - Vanguard Group's Standard & Poor's

500 ETF is on the edge of finally seizing the title of

the world's largest exchange-traded fund from rival State Street

Global Advisors' product, the SPDR S&P 500 Trust,

according to data from FactSet, LSEG and other sources.

As of late Friday, the State Street fund was still clinging

to the lead, with $633.1 billion in assets compared with $631.8

billion for the Vanguard ETF.

That gap, however, has been narrowing consistently in recent

months. Final data for inflows into both ETFs will not be

available until later on Tuesday or Wednesday morning, FactSet

and others said.

Analysts at Citi Research tracking monthly flows into and

out of exchange-traded funds reported earlier this month that

SPY had $19.4 billion in outflows, accounting for 25.7% of all

U.S. equity ETF outflows. Meanwhile, the Vanguard ETF raked in

12.9% of all inflows in January, for a total of $21.3 billion.

The SPDR ETF, launched in 1993, was the first U.S.

exchange-traded fund. It has reigned as the largest U.S. stock

ETF ever since and remains the first choice of hedge funds and

traders who prize its liquidity and tight trading spreads.

But Vanguard's lower-fee challenger, launched in 2010, won

admirers among financial advisors and retail investors

interested in paring costs to the bone.

"SPY's transition from being primarily an investment tool to

more of a trading vehicle has made flows more volatile," said

Ryan Jackson, senior analyst of passive strategies at

Morningstar.

The ETF industry has also undergone massive changes, with

the three biggest firms in the U.S. industry - BlackRock ( BLK )

, Vanguard and State Street - coming under siege from

relative newcomers.

"There is now more of a fight for market share," said Anna

Paglia, who last year left her post as global head of ETFs at

Invesco ( IVZ ) to join State Street as executive vice president

and chief business officer.

"SPY does keep growing in size because it's still the most

traded ETF in the world," Paglia told Reuters.

She added that flows into and out of SPY tend to be seasonal

in nature and that outflows early in the year are "not

unforeseen."

Moreover, Paglia said flows into a retail-focused S&P 500,

the SPDR Portfolio S&P 500 ETF remain robust.

According to the recent Citi Research report, this ETF - a

"mini" version of SPY launched in 2005 designed to appeal to

retail investors and with fees of only 0.02% - was the

fifth-largest ETF in terms of inflows for January, attracting

$3.2 billion.

"We don't look at SPY in isolation," Paglia told Reuters.

"We look at the ecosystem."

That does not alter the reality that Vanguard's ETF may have

finally toppled its State Street rival, said Todd Rosenbluth,

head of research at VettaFi.

"State Street remains a dominant player in the ETF universe,

but these are two different products."