SSgA’s Ross: ETF Cost War Misses The Point
October 19, 2012
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As two out of the top three largest U.S. ETF providers have made splashy cost-cutting announcements in recent weeks that have involved index changes, new ETF launches and fee cuts on several ETFs, the voice of the market’s second-largest ETF sponsor has been conspicuously absent.
That firm, State Street Global Advisors, has more than $326 billion in assets under management spread across more than 100 ETFs. It’s also behind the Sector Select SPDR ETFs, and the sponsor behind the two biggest ETFs in the world, the SPDR S&P 500 ETF (NYSEArca: SPY) and the SPDR Gold Shares (NYSEArca: GLD).
But SSgA has been largely mum on what seems to be a brewing race to the bottom on fund expense ratios among fund providers including iShares, Vanguard and Charles Schwab, sparking questions as to whether the Boston-based firm may be cooking up some sort of riposte. Don’t hold your breath.
James Ross, global head of SPDR ETFs and head of Intermediary Distribution for State Street Global Advisors, told IndexUniverse Correspondent Cinthia Murphy that when it comes to a price war, the last thing SSgA will do is react, because fund expense ratios are just one part of the ETF tale.
Murphy: Your competition has been very busy lately—first Schwab, then Vanguard and now iShares with the cost cuts—and SSgA has been staying out of the headlines in this price war story. Do you feel like you have to, or need to, join in this "race-to-the-bottom" movement?
Ross: We look at pricing on a continuous basis on our products and we’ve adjusted pricing at different points in time for different reasons, but the one thing we are not going to do is react. We always want to take a thoughtful approach. I look at this very much as, What’s the value proposition I bring to my client? I think core ETF pricing is one piece of that, but the overall trade, the overall investment and some of the softer things such as helping investors understand ETFs—from an educational standpoint—the impact on costs from bid/ask spreads, from trading, from tracking error and making sure we give a full picture.
Murphy: In your view, then, this obsession with expense ratios misses the big picture?
Ross: We are one of the largest ETF providers in the world and we’ve been doing this for a long time. I think the end investor is missing a little bit here, because in some there have been price cuts, in some cases there have been new funds, and in some cases there have been benchmark changes to benchmarks I’ve never heard of. My point is that investors can gain or lose by making a decision based on price that doesn’t include any consideration for other factors.
How you trade your ETF, when you go to market with that trade and the impact of the bid/ask spread can completely eliminate a significant pricing difference in an ETF. It’s easy to look at one number that’s well known and miss the nuances that can really help you be successful in an investment over time. Price is an important component, but it’s just one component.
Murphy: Price tag is an easy marketing peg, for sure.
Ross: I liken it to the mutual fund world where everyone knows price, so they talk about price a lot. But one thing you can’t get in the mutual fund world is trading strategies and costs. It’s not that different in the ETF world. We need to continue to educate the ETF investor holistically, looking at their ETF investment.