More Than SPDRs and $1.1 Trillion

August 05, 2004

After a period of relative inactivity, State Street Global Advisors (SSgA) has been making waves in the world of indexing...and beyond.

After remaining relatively quiet on the ETF scene for quite some time, State Street Global Advisors has made some moves as of late.

In April SSgA voluntarily slashed the expense ratio on the largest and oldest U.S. ETF, S&P 500 Spiders (ticker: SPY), from 0.12% to 0.10%.  Might not sound like a lot, but at such low expenses that amounts to decrease of about 16%.  The cut is scheduled to remain in place for one year.

"This isn't the first time we've reduced the expense ratio on SPY," said Gus Fleites, managing director of advisor strategies for State Street Global Advisors, in an interview.  "As the fund continues to be established, we want to keep it competitive in terms of expenses."

Although SPY was the best-selling fund in the land in July raking in an estimated $4.5 billion according to Financial Research Corporation, another S&P 500 ETF managed by Barclays Global Investors also cracked the top ten.  The BGI fund undercuts SPY expenses by a hair, or one basis point.

The two institutional indexers, SSgA and BGI, also pulled ahead of Fidelity Investments in Institutional Investor magazine's annual ranking of the biggest {C}U.S. money managers.  SSgA sat atop the heap with $1.1 trillion in assets to edge out BGI as of the end of 2003.  Both firms experienced big asset growth in 2003 at approximately 44 percent each, and the expansion of ETFs contributed to the bottom line.

SSgA appears ready to beef up its ETF lineup with international stock offerings.  In July it assumed the investment management of two Fresco-branded exchange-traded funds (ETFs) - the Fresco Dow Jones STOXX 50 Fund (NYSE: FEU) and the Fresco Dow Jones Euro STOXX 50 Fund (NYSE: FEZ).

"Acquiring the UBS ETFs were a good fit for us because we had some gaps in international, and it was faster than creating them from scratch," said Fleites.  "Our main goal is to make sure we're covering all the major asset classes."

The addition of the two international funds broke the product launch silence - SSgA has been under the ETF radar screen for months.  BGI, on the other hand, has been introducing ETFs at a ferocious clip, including the recent launch of funds tied to the Morningstar style box indexes.

"We've always been a little slower with bringing products to market because we want to make sure they will satisfy a need," said Fleites.  "We don't want to plaster the wall with dozens of products and see what sticks, and then end up closing products down the road."

With a few exceptions, most new ETFs have faced tough sledding to attract assets and volume, especially funds that are similar to existing offerings.  When asked if there are simply too many ETFs out there, Fleites replied, "Absolutely, but this is America and the competition will do some weeding out.  There have been some closing in the last year or so, and I expect moving forward you'll see more consolidation.  ETFs are not cheap to maintain and keep open."

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