The Securities and Exchange Commission's recent move to allow fund companies to create ETF share classes from traditional mutual funds is stirring a wave of new ETFs in the market. However, State Street Investment Management, a leader in ETF management, is taking a different approach. The firm manages approximately $1.7 trillion through its SPDRs ETF family, which includes the oldest and most actively traded S&P 500 ETF, SPY, and the largest gold ETF, GLD.
State Street views the SEC's decision as an opportunity to introduce mutual fund share classes of its ETF strategies to the expansive U.S. retirement market, specifically targeting areas typically closed to ETFs, like the 401(k) and 403(b) markets. This market, estimated to be worth $4 trillion according to State Street's chief business officer Anna Paglia, represents a substantial opportunity.
In a discussion on CNBC's "ETF Edge," Paglia explained that benefits such as cost efficiency and substantial asset management scale are advantages State Street can leverage despite some ETF features, like real-time trading and efficient tax structure, being less relevant in tax-deferred retirement plans. "We now have $1.7 trillion in ETF assets," Paglia noted, highlighting the firm's ability to provide competitive offerings due to its scale.
In her recent Barron’s op-ed, Paglia emphasized that while tax efficiency is a major attraction for ETFs, cost reduction through 'in-kind' flows during ETF redemptions could enhance retirement funds' performance. These transactions allow securities to be transferred directly to market makers, reducing turnover and associated costs, benefiting investors across all share classes.
State Street's most prominent ETFs include:
- SPDR S&P 500 ETF Trust (SPY) Assets: $698 billion, Expense ratio: 0.0945%
- SPDR Gold Shares (GLD) Assets: $132 billion, Expense ratio: 0.40%
- State Street SPDR Portfolio S&P 500 ETF (SPYM) Assets: $95 billion, Expense ratio: 0.02%
- Technology Select Sector SPDR Fund (XLK) Assets: $95 billion, Expense ratio: 0.08%
- Financial Select Sector SPDR Fund (XLF) Assets: $52 billion, Expense ratio: 0.08%
The SEC's approval of Dimensional Fund Advisors' application marks the beginning of this trend. Although more than 70 fund providers have applications pending, further progress is stalled due to a government shutdown affecting all ongoing SEC actions. Despite this, State Street remains poised to capitalize on this development and potentially introduce ETF-consistent offerings within the retirement market once proceedings resume.