By Todd Rosenbluth, Director of ETF & Mutual Fund Research – S&P Global Market Intelligence
State Street Global Advisors (SSGA) is the third largest ETF provider with $436 billion in assets according to Factset, aided by $2.1 billion of new assets in April. Jim Ross is an Executive Vice President of State Street Global Advisors and is Chairman of the Global SPDR business and SSGA Funds Management. Ross is responsible for advancing SSGA’s long-term ETF strategy and innovation.
Year to date through April, SPDR Gold (GLD) and SPDR Barclays High Yield (JNK) gathered $6.2 billion and $2.6 billion in new money, making them among the ten most popular ETFs in the industry in 2016. Meanwhile, with $2.4 billion and $785 million in assets, SPDR DoubleLine Total Return (TOTL) and SPDR S&P North American Natural Resources (NANR) had the most assets among ETFs launched in 2015. In addition, the firm has a broad suite of sector and industry ETFs such as Financial Select Sector PDR (XLF) and SPDR S&P Bank (KBE). S&P Global Market Intelligence has research reports on these and other SSGA ETFs available on this platform.
Below is the interview S&P Global Market Intelligence interview.
Q: Sector investing using ETFs has also remained popular. Your firm was a pioneer with the Select Sector SPDRs. How do you position them amid increased competition?
A: We look at sectors and industry ETFs holistically and dating back to 1998 they are the longest standing family of products. They are tied to well-constructed S&P indices and there is breadth of coverage. We try to provide our clients with the tools to build portfolios and use them ourselves with our sector rotation strategies. They are used in a variety of ways across different client profiles, both retail and institutional, which is why we tend to see more volatility in our flows. Sector SPDRs and industry ETFs like XLF are also liquidity driven products and are used by some short-term tactical investors.
Q: Real Estate is being elevated to its own GICS sector for the S&P 500 index, out of financials, later in 2016. SSGA recently launched new ETFs to provide investors with access to the two sectors. What impact do you think the change will have for sector investors?
A: It will give investors the opportunity to evaluate how they want to get exposure to the financials sector. If they want to follow the GICS change they will have ability to do so through the Sector SPDRs family. This was an important flexibility we wanted to provide our clients. We are very engaged with our clients and the board of directors of Sector SPDRs to make sure we can support a change in the market place being driven by indices.
[related_stories]We have a history of dealing with index changes like this where some countries will move into or out of emerging or developed markets. At SSGA, we have a talented team that deals with index tracking of global benchmarks and we look forward to displaying the Real Estate change to our clients.
Q: Relative to your peers, SSGA has a number of sub-advisory relationships to support ETFs. Why have you formed them?
A: There are a number of opportunities we identified where we can bring additional investment management expertise to our ETF clients. This would include Nuveen for municipal bonds. Another one is the partnership with MFS for active equity investments. They are still building a track record and while we have not seen a lot of assets yet, we expect the ETFs will do well. We have a partnership with GSO Blackstone on bank loans, which is an area they offer expertise. Last and most recently there is DoubleLine Capital. We launched in April two additional products to go along with TOTL, which was a highly successful ETF launch for us in 2015. For these ETFs, we are the sponsor and we hire the subadvisor and work closely with them on how to position the products in the marketplace.
Q: In addition, some of your newer ETFs have come to market with the support of large investors. Can you cite some examples?
A: These are more joint development efforts. For example, Edelman Financial had a view on North American natural resources and NANR was formed. Another one was the SPDR SSGA Gender Diversity ETF we launched and the initial investor was the California State teachers plan. Diversity of our talent force is an issue that State Street believed firmly in. A third one was the Fossil Free product tied to the S&P 500 index, which was launched with the support of the Natural Resources Defense Council. We think there are a lot of investors that want to invest in a socially responsible manner.
Q: Smart beta has been a favored theme for investors and asset managers in recent years. What do you think of these dividend or low volatility strategies?
A: We are spending a lot of time with what we call factor investing or advanced beta products.
The term smart beta leads someone to believe that market cap weighted investing, which has been around a long time and been successful, is not smart. I am not a fan of that view. But we have seen some significant interest from institutional investors around slicing factors. We want to make sure we have products to meet this demand. Dividend investing is not new, but different ways at looking at dividends and focusing on factors would be.
The concern is that if investors do not commit to an investment strategy they can be disappointed. An example is a low volatility investor that did not keep up with a rising market in 2015 and decided to redeem their shares. They lost out on the benefits of this approach to start 2016 when that type of strategy worked relative to a market cap weighted approach. We are trying to educate the market place about the best way to use factor investing is from a long term asset allocation perspective.