SPY's Big Outflows Hamper State Street: Morningstar

No. 3 ETF issuer questions data, as SPY, its flagship fund, has lost a net $26.9 billion this year in outflows.

In the race for ETF supremacy, third-place State Street Global Advisors is being hamstrung this year by its flagship fund, the $558 billion SPDR S&P 500 ETF Trust (SPY).

The world's first and largest exchange-traded fund has bled a net $26.9 billion so far this year, pinching State Street's overall flows and widening its standings in the league tables behind larger rivals, No. 1 BlackRock Inc. and No. 2 Vanguard Group.

According to the latest data from Morningstar, SSGA’s net ETF inflows this year through August totaled $8.1 billion, including net outflows of $3.9 billion for U.S. equity ETFs and $300 million for municipal bond ETFs. BlackRock's iShares took in $145.5 billion over the same period while Vanguard led all firms with a $174.8 billion haul.

"Recent flows have been shaky for State Street Global Advisors," the Morningstar report said. "Whiplash flows to and from SPDR S&P 500 Trust ETF SPY and tepid interest in sector equity ETFs have weighed on State Street’s bottom line, too. 

At more than $3 trillion across 414 ETFs, iShares is the largest issuer, followed by Vanguard with $2.6 trillion across 86 ETFs. SSGA has $1.3 trillion under management across 137 ETFs.

Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors, took issue with the Morningstar data, claiming it as “a little bit of an incomplete report.”

“There are seasonality and structural trends that typically drive flows into SPY in the November and December timeframe,” he said, adding that the ETF took in “$50 billion last year during those two months.”

SPY a "Unicorn"

“SPY has the fourth-most flows of any ETF, and it is a unicorn; a legit one of one,” he added. Bartolini said SPY’s size and liquidity has established it as a “very diverse use case, related to optionality and derivatives trading.”

“SPY trades roughly $25 billion a day,” he said. “No other ETF has ever come close to it, nor ever will.”

Ryan Jackson, senior manager research analyst at Morningstar, confirmed that “SPY has definitely seen better inflows and asset growth at the end of the year.”

According to Morningstar, from 2014 through 2023, SPY’s average fourth-quarter net inflow was $16 billion.

Jackson acknowledged the variability of flows into SPY as a unique trading vehicle, but said SSGA is also losing ground to iShares and Vanguard due to a smaller footprint in the increasingly popular categories of fixed income and actively managed ETFs.

Worst Year Since 2018?

On that point, Bartolini responded that, “Our fixed income lineup is pretty broad based and our active lineup, which is more in the fixed income arena, covers core and core plus.”

“The (Morningstar) flow numbers are not a complete picture,” he added.

The report said that State Street is on track for its "worst year of ETF flows since 2018."