State Street Global Advisors (SSgA) inked a deal with the American Stock Exchange (AMEX) on November 1 that grants State Street sole control of the advertising budget for three of the world's largest exchange-traded funds (ETFs). The funds had been marketed by AMEX and PDR Services LLC, a wholly-owned subsidiary of the exchange.
For an undisclosed fee, SSgA acquired the licensing rights for the SPDRs Trust (SPY), Midcap SPDRS Trust (MDY) and Dow Diamonds (DIA) ETFs, along with related trademarks. All three funds were jointly developed by SSgA and the AMEX, but under the previous agreement, the job of marketing the funds fell solely to the Amex. Now, SSgA controls the marketing budget. And the Amex gets a need nice cash infusion as it moves forward with its plans to develop actively-managed ETFs and other innovative products.
We're talking serious money, too. According to the prospectuses, the SPDR spends three basis points of total assets on marketing each year; the Midcap SPDR spends 1.1 basis points; and the DIA spends a whopping 5.6 basis points. Based on recent figures, that works out to almost $21 million/year.
The licensing deal also grants SSgA rights to use the S&P 500 and Dow Jones Industrial Average trademarks, which can't be a bad thing.
SSgA said the licensing fee was "not material." But for a gigantic company like State Street, that's a relative term; there was certainly some money involved. The question, then, is why would SSgA cough up good money to the Amex for the right to market these funds?
The answer must be brand positioning. SSgA was the original home of the ETF, creating the SPDR way back in 1993. And it remains the trustee for the fund, which is the largest ETF in the world.
But because there is currently very limited SSgA branding on the SPDR, it does not get as much credit for the fund as it may deserve. Many people associate SSgA with its streetTRACKS-branded family of ETFs, which are doing well - but do not boast the kind of assets tied to the SPDRs.
In fact, Barclays Global Investors (BGI) has in many ways stolen the mantle of "ETF leader" with the huge success of their iShares funds. If controlling the advertising budget for the SPDRs and DIA somehow lets SSgA boosts its overall ETF profile (or the profile of its streetTracks brand), that could be a huge boost to SSgA's ETF aspirations.
That's all-the-more important because SSgA recently filed for the right to launch nine new ETFs (with plans for many more), marking the first major expansion of its ETF roster in seven years. The move will expand SSgA's U.S.-listed ETF roster from 23 to 32 funds (with another 24 listed abroad), and will give SSgA a full suite of U.S. style- and capitalization-based ETFs for the first time.