Dual-ETF S&P 500 Allocation: Why Kedalion Holds IVV + SPYM

Kedalion Capital Management LLP holds 56.89% of its $3.48 billion 13F in iShares Core S&P 500 ETF (IVV) plus 39.32% in SPDR Portfolio S&P 500 ETF (SPYM). Combined 96.21% in two S&P 500 ETFs at nearly identical expense ratios (IVV at 0.03%, SPYM at 0.02%). Why split a pure-beta S&P 500 allocation across two ETFs instead of using a single fund? The answer is sophisticated tax-management mechanics — specifically tax-loss harvesting without violating IRS wash-sale rules. Multiple pure-beta wealth managers and sophisticated RIAs deploy dual-ETF S&P 500 allocations for this exact purpose. The strategy is invisible in single-fund holders but obvious once you understand the tax mechanics.

The IRS wash-sale rule problem

Section 1091 of the IRS code disallows tax-loss harvesting if a 'substantially identical' security is purchased within 30 days before or after the loss-realization sale. The rule prevents investors from claiming tax losses on positions they continue to hold.

For pure-beta wealth managers, this creates a problem:

• S&P 500 tracking is essential to client mandates.
• Market drawdowns produce tax-loss harvesting opportunities.
• Selling a single S&P 500 ETF and immediately repurchasing the same ETF triggers wash-sale disallowance.
• Going to cash for 31 days violates the client mandate by leaving the S&P 500 exposure.

The dual-ETF solution: hold two separate S&P 500 ETFs that the IRS considers not substantially identical, even though they track the same index. Sell the underwater ETF for the tax loss; buy the alternative ETF immediately to preserve the market exposure.

How dual-ETF tax-loss harvesting works

The mechanics:

1. Hold both IVV and SPYM at the start of the year.
2. If IVV trades down meaningfully through a market drawdown, sell IVV at a loss.
3. Simultaneously purchase additional SPYM to maintain S&P 500 exposure.
4. Wait 31 days for the wash-sale window to pass.
5. Optionally rebalance back to original IVV + SPYM weights.

The tax loss is realized and claimable; the S&P 500 exposure is preserved throughout. The strategy can be repeated each market cycle, accumulating tax-loss carryforwards that offset capital gains in future years.

Why IVV and SPYM are not 'substantially identical'

The IRS has not provided definitive guidance on dual-ETF wash-sale treatment, but tax practitioners generally consider two S&P 500 ETFs from different providers (BlackRock's IVV and State Street's SPYM) to be not substantially identical because:

1. Different fund sponsors and management. IVV is managed by BlackRock; SPYM is managed by State Street.
2. Different fund structures. While both track the S&P 500, the funds have separate prospectuses, custodial relationships, and operational structures.
3. Different expense ratios. IVV at 0.03% and SPYM at 0.02% have nominally different cost structures.
4. Different tracking methodologies. Even though both track the S&P 500, the operational tracking can differ marginally.

The conservative view treats them as not substantially identical for wash-sale purposes. The aggressive view treats them as substantially identical. Most pure-beta managers operate on the conservative view as best practice.

Who uses dual-ETF strategies

Three categories of US institutional managers deploy dual-ETF S&P 500 allocations:

• Pure-beta wealth managers like Kedalion Capital Management LLP (96% in IVV + SPYM).
• RIA wealth-management firms serving high-net-worth taxable clients where after-tax returns matter materially.
• OCIO providers like Cambridge Associates (multiple S&P 500 ETF allocations across IVV plus broader Vanguard ETFs).

What this means for 13F readers

Three observations:

1. Dual-ETF S&P 500 allocation signals tax-aware wealth management. When a 13F holds both IVV and another S&P 500 ETF (SPYM, VOO, SPY) at meaningful weights, the manager is likely a tax-aware RIA or wealth-management firm serving taxable clients.
2. The split ratio reflects operational tax-lot management. Kedalion's 56% IVV + 39% SPYM split likely reflects client account-level tax-lot positioning rather than tactical allocation views.
3. This is a wealth-management feature, not an institutional-investment view. Pure passive index funds and pension funds don't typically use dual-ETF strategies because their tax treatment differs from taxable individual accounts.

What to track

1. Pure-beta wealth manager 13Fs. Watch IVV + SPYM combined weights across multiple quarters at Kedalion and similar firms.
2. Major market drawdowns. Dual-ETF strategies become especially active during 10%+ S&P 500 drawdowns when tax-loss harvesting opportunities are largest.
3. IRS guidance on ETF wash-sale treatment. Any IRS clarification of the substantially-identical standard could materially affect the strategy.

For real-time tracking of dual-ETF and pure-beta wealth manager 13F activity, see the institutional signals feed. For related reading techniques on pure-beta and OCIO 13F structures, see our pure-beta wealth manager decoder.