Today, State Street Global Advisors cut the fees on 10 of its already-rock-bottom-priced “Portfolio” ETFs representing core asset classes. Most notably, the $19.7 billion SPDR Portfolio S&P 500 ETF (SPLG) saw its expense ratio decreased by one-third. It is now priced at just two basis points, making it one of the cheapest ETFs on the market.
State Street Global Advisors has sought to appeal to fee-conscious advisors and investors with SPLG. However, in the past year, SPLG gathered $3.4 billion. This is far less than the new money gathered by the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV). VOO and IVV added $36 billion and $14 billion, respectively, in the past year, despite charging the same 0.03% expense ratio.
The SPDR S&P 500 ETF (SPY), which remains the largest U.S.-listed ETF, added $14 billion in the past year. Despite a higher 0.09% expense ratio, many investors turn to SPY for its strong liquidity and tight trading spreads.
A New Floor Set for S&P 500 ETFs
While SPLG’s fee sets a new floor for S&P 500-based ETFs, we don’t expect iShares and Vanguard to initially feel pressured to match the fee. It remains unclear if cost savings of one basis point in fees will cause a significant shift in advisor behavior. However, lowered fees for the broader suite of SPDR Portfolio ETFs could encourage advisors to consider using State Street Global Advisor products to build asset allocation strategies.
The other affected funds and their new expense ratios are as follows:
SPDR Portfolio S&P 400 Mid Cap ETF (SPMD), 0.03%, down from 0.05%
SPDR Portfolio S&P 600 Small Cap ETF (SPSM), 0.03%, down from 0.05%
SPDR Portfolio Developed World ex-US ETF (SPDW), 0.04%, down from 0.03%
SPDR Portfolio Europe ETF (SPEU), 0.07%, down from 0.09%
SPDR Portfolio Emerging Markets ETF (SPEM), 0.07%, down from 0.11%
SPDR Portfolio Short Term Treasury ETF (SPTS), 0.03%, down from 0.06%
SPDR Portfolio Intermediate Term Treasury ETF (SPTI), 0.03%, down from 0.06%
SPDR Portfolio Long Term Treasury ETF (SPTL), 0.03%, down from 0.06%
SPDR Portfolio High Yield Bond ETF (SPHY), 0.05%, down from 0.10%
Should ETF Fees Matter So Much?
Let’s focus on a few others in this list. SPEM’s new fee is cheaper than those of the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares Core MSCI Emerging Markets ETF (IEMG) by one and two basis points, respectively. SPEM added $1.85 billion of new money in the past year.
SPHY was already cheaper than the iShares Broad USD High Yield Corporate Bond ETF (USHY), but now it is 10 basis points less. SPHY had $650 million of net inflows in the last 12 months.
We think advisors and end clients should dig deeper than a fund’s expense ratio to understand the exposure provided. For example, while IEMG has exposure to South Korean stocks, SPEM is like VWO and does not own them. However, we think low fees will entice more people to consider ETFs over owning mutual funds or individual securities.
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