This morning, State Street launched a dramatic new salvo in the fee war with its SPDR Portfolio ETFs, a suite of 15 existing ETFs repackaged with rock-bottom expense ratios, some the lowest in their class.
Effective today, the issuer has slashed fees for the 15 ETFs, which together comprise an existing $11.7 billion in assets under management. The funds were also given new names and tickers, listed below. Three funds were given new indexes as well.
|Previous Name/Ticker||Previous Total
|New Name/Ticker||New Total
|SPDR Russell 3000 ETF (THRK)||0.10%||SPDR Portfolio Total Stock Market ETF (SPTM)||0.03%|
|SPDR Russell 1000 ETF (ONEK)||0.10%||SPDR Portfolio Large Cap ETF (SPLG)||0.03%|
|SPDR S&P 1000 ETF (SMD)||0.10%||SPDR Portfolio Mid Cap ETF (SPMD)||0.05%|
|SPDR Russell 2000 ETF (TWOK)||0.10%||SPDR Portfolio Small Cap ETF (SPSM)||0.05%|
|SPDR S&P 500 Growth ETF (SPYG)||0.15%||SPDR Portfolio S&P 500 Growth ETF (SPYG)||0.04%|
|SPDR S&P 500 Value ETF (SPYV)||0.15%||SPDR Portfolio S&P 500 Value ETF (SPYV)||0.04%|
|SPDR S&P 500 High Dividend ETF (SPYD)||0.12%||SPDR Portfolio S&P 500 High Dividend ETF (SPYD)||0.07%|
|SPDR S&P World ex-US ETF (GWL)||0.34%||SPDR Portfolio World ex-US ETF (SPDW)||0.04%|
|SPDR S&P Emerging Markets ETF (GMM)||0.59%||SPDR Portfolio Emerging Markets ETF (SPEM)||0.11%|
|SPDR Bloomberg Barclays Aggregate Bond ETF (BNDS)||0.08%||SPDR Portfolio Aggregate Bond ETF (SPAB)||0.04%|
|SPDR Bloomberg Barclays Long Term Corporate Bond ETF (LWC)||0.12%||SPDR Portfolio Long Term Corporate Bond ETF (SPLB)||0.07%|
|SPDR Bloomberg Barclays Intermediate Term Corporate Bond ETF (ITR)||0.12%||SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB)||0.07%|
|SPDR Bloomberg Barclays Short Term Corporate Bond ETF (SCPB)||0.12%||SPDR Portfolio Short Term Corporate Bond ETF (SPSB)||0.07%|
|SPDR Bloomberg Barclays Long Term Treasury ETF (TLO)||0.10%||SPDR Portfolio Long Term Treasury ETF (SPTL)||0.06%|
|SPDR Bloomberg Barclays Short Term Treasury ETF (SST)||0.10%||SPDR Portfolio Short Term Treasury ETF (SPTS)||0.06%|
"Each fund in the SPDR Portfolio suite is priced equal to or below the lowest fee ETF in the category," said Rory Tobin, co-head of the Global SPDR business at SSGA, in a press release. "Some of these changes in price are significant—such as offering emerging markets exposure at 11 basis points."
As investors increasingly opt for low-cost ETFs, many issuers have lowered expense ratios for their funds to meet demand. But whereas most issuers have gently eroded their fund fees, chipping away a basis point or two at a time, State Street today hacked its fees by 10 basis points or more. Its emerging market ETF, the SPDR S&P Emerging Markets ETF, dropped a staggering 48 basis points.
"With its slashing of fees for a variety of ETFs, many tied to prominent indices, SSGA has aggressively crashed the low-fee ETF party," says Todd Rosenbluth, director of ETF & Mutual Fund Research, CFRA. "Though we have not believed other moves were part of a fee war, SSGA is heading us down a path of no retreat."
State Street's fee changes represent nontrivial savings for investors: Across the entire suite of ETFs, investors should save some $11.6 million annually.
Some cuts will result in greater savings for investors than others. Investors in the SPDR Portfolio World ex-USE ETF (SPDW, formerly GWL) and the SPDR Portfolio Emerging Markets ETF (SPEM, formerly GMM) will see the greatest savings, saving $3.1 million and $2.8 million per year, respectively.
The SPDR Portfolio Short Term Treasury ETF (SPTS, formerly SST) and SPDR Portfolio Mid Cap ETF (SPMD, formerly SMD) will see the least savings, at $58,000 and $92,000 per year, respectively.
SSGA also deliberately timed the funds' re-vamp with the launch of TD Ameritrade's newly expanded ETF Market Center, where all 15 ETFs will be available to trade commission-free, further increasing investors' savings.
3 More Self-Indexed ETFs
State Street is also changing the indexes on three of the SPDR Portfolio ETFs, moving from Russell indexes to brand-new in-house benchmarks:
|Fund Name/Ticker||Previous Benchmark Index||New Benchmark Index|
|SPDR Portfolio Total Stock Market ETF (SPTM)||Russell 3000 Index||SSGA Total Stock Market Index|
|SPDR Portfolio Large Cap ETF (SPLG)||Russell 1000 Index||SSGA Large Cap Index|
|SPDR Portfolio Small Cap ETF (SPSM)||Russell 2000 Index||SSGA Small Cap Index|
The three indexes are created by State Street, and managed, calculated and distributed by ICE Data Indices.
Self-indexing allows issuers greater precision, says Rosenbluth, not just over what to charge but also which securities go into the fund.
"By self-indexing, an ETF provider can have greater control of the expense ratios of their ETFs, since an index licensing fee can add to overall costs," he said. "It enables the provider to have greater control into what securities end up in the ETF, limited the less liquid ones that are harder to own in a replication strategy."
The SPDR Portfolio ETFs cover a range of core portfolio exposures, such as fixed income, domestic stocks, emerging market stocks and international equities.
Asset Allocation Is Key
"Research has long shown that asset allocation decisions explain over 90% of the variance in portfolio returns. Simply put, it all starts with asset allocation," says Matt Bartolini, head of SPDR Americas Research, in the press release. "Today's low return expectations make building an ultra-low-cost, diversified core more important than ever, as costs accumulate over time, eroding a portfolio's total return."
Interestingly, 10 of the ETFs in the SPDR Portfolio suite underwent share splits this morning, including THRK, ONEK, SMD, TWOK, SPYG, SPYV, GMM, BNDS, LWC and TWO.
Though institutions often prefer ETFs with larger share prices, due to the potential for tighter spreads and minimized trading costs, financial advisors instead tend to prefer smaller share prices. State Street's share splits therefore seem targeted to further position the rebranded ETFs toward financial advisors, who might use them as core portfolio components.
State Street Changes Game
State Street is the third-largest ETF issuer, with $567 billion in assets under management across its 131 funds. But those assets are highly concentrated in a few select ETFs: namely, the SPDR S&P 500 ETF Trust (SPY) and the SPDR Gold Trust (GLD), which together account for 49% of the company's total assets and the vast majority of its inflows. Over the years, the firm has lost significant market share as cost-cutters like Vanguard, iShares and Schwab entered the picture.
By cutting fees on these ETFs, State Street clearly hopes to lure investors to its other product offerings. But the SPDR Portfolio ETFs will come with their own risks, says Rosenbluth.
"The SSGA [ETFs] have historically traded less frequently than the iShares and Vanguard alternative[s] and as such, investors could incur higher trading costs," he added. "Meanwhile, SSGA['s] replacement of Russell indices with its own proprietary index will likely result in its shareholders ending up with a slightly different portfolio."
Contact Lara Crigger at [email protected]