Behind State Street’s Aggressive Fee Revamp

October 18, 2017 You changed the index on three ETFs, going from Russell to SPDR benchmarks. State Street already self-indexed three other ETFs—the SPDR SSGA U.S. Small Cap Low Volatility Index ETF (SMLV), the SPDR SSGA U.S. Large Cap Low Volatility Index ETF (LGLV) and the SPDR SSGA Gender Diversity Index ETF (SHE). Why self-index? Was it the only way to really bring down costs?

Good: No. Our preference, first and foremost, is to work with index providers where we can make it work. They provide a lot of value. And particularly for the bigger, more well-known benchmarks, there's a real importance with that.

In these cases, with those three index providers originally—Russell, S&P and Bloomberg—all three were excellent partners. The reality is we're looking at how we wanted these funds to be positioned for the buy-and-hold investor.

In many cases, if we could work with the index provider to get them to price points that worked, that was great; but if we couldn't, then we would look at a self-indexing option.

But it's a trade-off. There are plenty of people who want certain benchmarks, and they're willing to pay for that. In these, we're looking to get them down to very low price points. In some cases, we were able to do that with the index provider, and in some cases. we weren't. Why weren’t the SPDR S&P 500 ETF Trust (SPY) and the SPDR Gold Trust (GLD) on this list? In the case of SPY, the competing iShares Core S&P 500 ETF (IVV), Vanguard S&P 500 ETF (VOO) and Schwab U.S. Large-Cap ETF (SCHX) all are cheaper. In the case of GLD, the iShares Gold Trust (IAU) is almost 40% cheaper.

Good: There are a few reasons. The primary one is, whilst these funds are widely held by buy-and-hold investors, they have incredible liquidity. SPY, for example, has traded at penny spreads every single day for 12 years.

That can't be said of its main competitors. Investors are willing to pay for that. We're still talking about 9 basis points. It's not exactly breaking the bank. But there's a real value there.

Recognizing that there were some for whom the benchmark was less important and price was the predominant factor, we wanted to offer them something that was a very low-price, retail-oriented ETF. For those who may want to trade it even once a year, SPY sits there and has this incredible liquidity, and for that, 9 basis points is a very reasonable fee.

The same is mostly true of GLD. There are clearly other factors at play. Both of these weren't funds that were going to end up on the commission-free platform with TDA.

GLD is a very highly traded fund, with an awful lot of liquidity. We continue to see solid inflows into it. We look at it as a big, institutionally targeted fund that, whilst retail advisors and others use it because of its liquidity, they're willing to pay for that additional liquidity.

But we'll continue to look at this lineup in the future.

Contact Cinthia Murphy at [email protected]


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