A Look At SSGA's ETF Revamp

October 26, 2017

Here’s how the revamped SPDR portfolio funds compare on trading volume and spreads. 

 

ETFExplainerXLB

For a larger view, please click on the image above.

 

BlackRock clearly dominates the field for these direct competitors, in terms of assets, trading volume and 0.01% spreads. 

State Street might be closing the gap. Since the revamp announcement, SPDR Portfolio spreads have tightened and volumes have increased, compared to their post-Labor Day averages.

 

ETFExplainerXLB

For a larger view, please click on the image above.

 

Long-Term Costs

Should the increased volumes and tightening spreads hold, the SPDR Portfolio TACO will drop, making these funds competitive. Even today, the buy-and-hold crowd—the ones who should be willing to absorb a bit of additional trading cost in exchange for better long-term operating efficiency—might want to take a serious look at the revamped SPDR Portfolio funds, focusing on long-term holding costs and operational risks. 

Operational-risk-wise, all of the direct competitors in these segments have a clean bill of health, plus a track record of avoiding making capital gains distributions (except AGG). Investors can rest assured that none of these funds will likely close, default or fail to file annual reports. Cost-wise, the name of the game here is tracking difference (the gap between expected returns, as delivered by the fund’s underlying index) and actual returns (the fund’s net asset value, with distributions reinvested). It’s not just the magnitude of the gap, but its variability that matters. After all, nobody wants to be the unlucky investor who buys a fund at its peak versus its underlying index, only to sell it at a relative low. 

 

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