How The Big 3 ETF Issuers Got So Big

August 29, 2017

Lowering Costs

State Street has also attracted investors by surgically slashing its prices. The Select Sector SPDRs, for example, launched with expense ratios around 40 basis points. Now, they're just 14 bps apiece. That’s helped the Select Sector SPDRs become the go-to funds for investors' sector rotation strategies: With the exception of newcomer Real Estate Select Sector SPDR Fund (XLRE), all the Select Sector SPDRs dwarf their competitors in terms of assets. (Five are more than 10 times as large as the nearest competitor.)      

SSGA leans heavily on S&P and Bloomberg Barclays indices, with a handful of MSCI and Russell benchmarks sprinkled in. (Compare that with iShares, whose lineup is almost the exact reverse.) For many core products, the distinction is mostly academic; but index provider can matter significantly for thematic plays, or even in emerging markets funds.

Last year, SSGA launched nine new funds, including three actively managed bond ETFs, three tech funds and three environmental, governance and social responsibility (ESG)-related ETFs. It also had a breakout hit in the SPDR SSGA Gender Diversity Index ETF (SHE), an ESG fund that harnesses what Good says is the company's unique position to demand strong stewardship.

"We're not active managers, so we can't just sell a stock because we don't like how it's run," he noted. But SSGA's size means "we have an obligation to challenge boards and make sure companies we invest in actually operate how we think they should."

To that point, State Street recently voted against the re-election of board members from 400 companies with all-male directorship teams. (It's unclear whether this resulted in any lost seats, however.)

Greater emphasis on governance is something SSGA hopes will help attract more institutional customers, who Good estimates already account for 40% of its assets, or slightly more than the industry average (36%).*

The firm has also enhanced its model ETF portfolio business, launching an educational blitz to guide investors through the basics of building good portfolios. "There's almost a geekiness to how we approach our business," said Good.

 

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