In The Trenches Of Low Cost ETFs

October 25, 2018

One year ago, State Street Global Advisors rolled out the SPDR Portfolio ETFs, entering the low-cost passive ETF segment with a bang.

These 15 ETFs consisted of existing funds that were rebranded and repackaged with ultra-cheap expense ratios and lower share prices. Together they commanded under $12 billion in total assets prior to the change. A year later, State Street’s move seems to be paying off.

The No. 3 ETF issuer, with $608 billion in ETF assets, has watched its market share grow thanks to healthy investor demand for low-cost portfolio core strategies. The Portfolio SPDRs have seen $20 billion in net creations thus far. Together, they now boast nearly $32 billion in total assets—almost 3x their combined assets just a year ago.

Here they are at a glance, as well as their individual asset haul in the past 12 months: 

 

ETF Exp Ratio 1-Yr Net Inflows Total AUM
SPDR Portfolio S&P 500 Growth ETF (SPYG)  0.04% $2.59B $3.69B
SPDR Portfolio World ex-US ETF (SPDW)  0.04% $2.55B $3.32B
SPDR Portfolio Aggregate Bond ETF (SPAB)  0.04% $2.06B $3.05B
SPDR Portfolio Total Stock Market ETF (SPTM)  0.03% $2.00B $2.59B
SPDR Portfolio S&P 500 Value ETF (SPYV) 0.04% $1.63B $1.94B
SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB)  0.07% $1.60B $3.75B
SPDR Portfolio Large Cap ETF (SPLG)  0.03% $1.48B $1.67B
SPDR Portfolio Short Term Corporate Bond ETF (SPSB)  0.07% $1.36B $4.46B
SPDR Portfolio Small Cap ETF (SPSM)  0.05% $1.15B $1.40B
SPDR Portfolio Emerging Markets ETF (SPEM)  0.11% $1.14B $1.46B
SPDR Portfolio Mid Cap ETF (SPMD)  0.05% $897M $1.06B
SPDR Portfolio Long Term Treasury ETF (SPTL)  0.06% $613M $1.10B
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)  0.07% $523M $715M
SPDR Portfolio Short Term Treasury ETF (SPTS)  0.06% $432M $570M
SPDR Portfolio Long Term Corporate Bond ETF (SPLB)  0.07% $132M $335M

 

State Street’s head of SPDR Americas Research Matthew Bartolini offered some color on what the first year of battling it out in the low-cost space has been like.

 

ETF.com: The SPDR Portfolio ETFs have seen $20 billion in net creations in 12 months. Better than expected, or as expected?

Matthew Bartolini: This is a great result. Back when we launched the funds, we had essentially 0.4% of market share in the low-cost ETF segment, and we've been able to basically double that to about 1% market share, taking in roughly 10% of all low-cost flows, 6.5% of all industry flows since we restructured—this has definitely been a great result.

ETF.com: How do you measure the low-cost market? Is it SPDR Portfolio ETFs, iShares Core, and, what, just about most Vanguard funds? What's the universe?

Bartolini: That's a pretty fair universe. We have a business classification, but that’s internal. Your representation of the market is pretty close to what we’d consider the low-cost universe and how we view the competitor offerings.

ETF.com: The SPDR Portfolio ETFs gathered about half of all flows into State Street ETFs in the past year. Is this type of demand likely to stay strong?

Bartolini: Over the last 12 months, SPDR ETFs have taken in about $15 billion, and the SPDR Portfolio ETFs have taken in $20 billion, so actually, more than half the flows. But some of that's going to be cyclical shifts. The SPDR S&P 500 ETF Trust (SPY) historically has its best quarter in the fourth quarter. My expectation is that demand for SPY is going to be higher in the next quarter.

Plus, we’ve had some recent volatility that's weighed on SPY. This month alone, SPY's had $8 billion in outflows that were the result of some of the uptick in volatility. That's skewed the results a little bit.

ETF.com: Any insight into asset-gathering leaders among Portfolio SPDRs?

Bartolini: The flow patterns have been persistent across all of them. The SPDR Portfolio Short Term Corporate Bond ETF (SPSB) is definitely the largest, but it was also the largest before we restructured, and it's continued to see creations because it's a great fund for this environment. It's a one- to three-year corporate with very strong yield-per-unit duration. And it's been able to outperform one- to five-year exposures as a result.

While SPSB’s the largest, the most successful in terms of asset gathering has been the SPDR Portfolio S&P 500 Growth ETF (SPYG), which has taken in the most since launch out of any other fund. But one of the criteria we looked at in gauging success, too, is the amount of funds that have gone over $1 billion. There were only four funds over $1 billion before we restructured; now there are 12.

ETF.com: Did the restructuring land these ETFs in platforms they weren't in before?

Bartolini: Yes. When we restructured, we researched the market and needed to make sure we dotted all our I’s and crossed all our T’s in terms of how to make a complete, successful, low-cost core suite.

We made the naming convention consistent. We made the funds attractive to how people are building models now and model delivery. There's been a decided shift into a digital advice/robo model platform and robo advisory services where there are very low minimum account sizes.

Look at the SPDR Portfolio Large Cap ETF (SPLG), for instance; it’s seen a 900% increase in assets in part because SPLG is one of the funds we've seen allocated to by a digital advice model with a new wealth management channel. That's a proof statement that the restructuring of these funds, and lowering the share price to $30 to make it more accessible for portfolio construction in a low minimum account size, has worked.

We've also seen trading volumes increase markedly. The 30-day volume before launch on these ETFs was roughly $3.8 million on average. Now it's $21 million—a 5x increase in volume. That's been beneficial to the spread—average spreads are pennywide now. That also helps lower the total cost of ownership.

Contact Cinthia Murphy at [email protected]

Find your next ETF

CLEAR FILTER