From the outside, it would appear State Street’s (NYSE: STT) State Street Global Advisors, the second-largest U.S. ETF issuer, has its hands full.
One of the firm’s marquee products, the SPDR Gold Shares (NYSEArca: GLD), has lost $22.2 billion in assets this year, nearly three times that of the second-worst ETF outflow offender. Then there is the rising competition among providers of sector ETFs.
SSgA was one of the first issuers to offer sector ETF with its nine sector SPDRs, all of which have annual expense ratios of 0.18%. Vanguard, the third-largest U.S. ETF issuer, came along with comparable products, most of which now charge 0.14% per year. SSgA’s Boston neighbor Fidelity has undercut both SSgA and Vanguard with the recent introduction of 10 sector funds with annual fees of 0.12%. [Sector ETF Slideshow]
And then there is the ongoing chatter that Vanguard will surpass SSgA for the second spot among U.S. ETF issuers. That conversation is now multiple years old and SSgA still has $46.2 billion more in ETF assets than does Vanguard. Based on the current market value, nearly two Twitters (NYSE: TWTR) separate SSgA’s and Vanguard’s ETF AUM totals.
Writing SSgA’s sector ETF obituary is hasty. More importantly, the statistics indicate the firm is still the dominant provider of sector ETFs and that business is growing.
“Over the past three years, we’ve seen a 30% compound annual growth rate in the nine sector SPDRs,” said Dave Mazza, SSgA’s head of ETF investment strategy, in an interview with ETF Trends at the Bank of New York Mellon ETF Symposium in Dana Point, Calif.
While Mazza acknowledged the increased competition in the sector ETF arena, he said the nine SPDRs “have a lot of momentum” and that the firm is seeing increased institutional use of the SPDRs lineup.
There is something to that assertion. The Financial Select Sector SPDR (NYSEArca: XLF) is by far the largest U.S. sector ETF with $14.7 billion in assets followed by the Technology Select Sector SPDR (NYSEArca: XLK) with $12.1 billion.
The Energy Select Sector SPDR (NYSEArca: XLE) and the Health Care Select Sector SPDR (NYSEArca: XLV) are battling for the bronze medal among sector ETFs with $8.2 billion and $8 billion in AUM respectively. Meanwhile, the only Vanguard sector ETF to rank among the 100 largest U.S. ETFs is the firm’s rival to XLK. [XLE, XLV Battle for Third Spot Among Sector ETFs]
Mazza said institutional investors are increasingly interested in the SPDRs because more of those investors are building out sector rotation strategies.
International markets are also bolstering the growth of the SPDRs.
“Pension plans and non-U.S. institutional investors are becoming more interested in sector ETFs,” said Mazza.
That jibes with news out earlier this week that Latin American pension plans are increasing their use of U.S. ETFs, a movement Mazza notes is being led by Chile. [Latin America: New ETF Growth Frontier]
“Most of our foray in Latin America has been on the equities side because local bonds have higher yields than U.S. bonds,” said Mazza. “Chile is really taking the lead in terms of using U.S. ETFs.”
Mazza said Chileans can purchase the nine SPDRs, the SPDR S&P 500 (NYSEArca: SPY) and SSgA’s industry funds for use in their pension plans.
As for the expense ratio competition, it is not all about fees all the time.
“Advisors have become more sophisticated when it comes to cost,” said Mazza. “Total cost of ownership, commissions, tracking error; that conversation has picked up in intensity. The SPDRs have some of the lowest tracking error. Our size and efficiencies help.”