Mazza (cont'd.): This year is a great example of that. The year started off with a little bit of a higher correlation environment, but more recently, some of the worst-case fears related to Europe have been removed from the market, and correlation has decreased; it is now closer to just above historical averages—the historical average is about 0.25, 0.26 from 1993 to August 2012, and at last check is about 0.33. That’s much more reasonable than what you’d have seen a year ago when the S&P downgraded the U.S., a time when some of the highest correlation of individual stocks ever was observed.

ETFs, because they have transparency, cost efficiency, liquidity and tax efficiency, allow investors to transact and get exposure to markets that may be more difficult to access at first blush, because it’s a market that’s driven by macroeconomic concerns. I think ETFs really provide access to all types of investors to be able to perform well or have the potential to perform well in markets of that nature. So, ETFs can help diversify and help investors navigate difficult markets.

Murphy: Let’s talk about SPY. It’s headed for its 20^th anniversary. What are some of the lessons from its 20-year history?

Mazza: It’s remarkable to think about the story of SPY, having humble beginnings in 1993 and the growth that’s been seen through today. And it’s funny because you can tie a lot of the ETF growth to these periods of stress in the market. While the AUM in the ETF has been steadily growing, when the shocks happened, investors realized that this ETF would have allowed for things like intraday trading, and broad-based exposure to the U.S. market very easily, so you can look at SPY’s growth as a staircase, meaning it might look gradual, but those uncertain periods really allowed for boosts in growth.

Going forward, SPY is called the granddad of ETFs for a reason: 1) it’s the first; 2) it’s the largest and most liquid security in the world. And it’s really become a part of the financial ecosystem. It offers investors the ability to transact in a way that they couldn’t before. And I think that all of the benefits that have driven ETF growth for the past 20 years will continue to make sense in the next 20—transparency, liquidity, cost-efficiency, ease of use. From an investment environment standpoint, I don’t see those benefits going away.

Murphy: Without taking away from SPY’s success story, it’s also interesting that almost 60 percent of SSgA’s ETF assets are tied to only two funds: SPY and GLD. Does that concern you?

Mazza: We are very proud of the growth of SPY and GLD, and we are not embarrassed to admit it. But I would say that sometimes that large AUM and that huge growth mask some of our other products that have seen tremendous growth over the years. Funds like JNK, or the Select Sector ETF suite, and industry ETFs. But when you have SPY and GLD, everything else may actually pale in comparison. So we like to look at not just flows on an absolute basis, but flows as percentage of assets.

One example of our success, for instance, is FEZ, which is close to $1 billion, and it started the year with far fewer assets; these are pockets in our product lineup that investors are beginning to notice. The liquidity side of SPY and GLD will remain paramount for investors, but the rest of our lineup is certainly diverse and robust; we have 114 ETFs now, with over $300 billion in assets. Our growth opportunities are very strong.

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