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IU: State Street has, for example, a Telecom ETF. So from an investor's standpoint, what's the difference?
Dolan: The Sector SPDRs Trust consists of nine ETFs which divide the S&P 500 into pieces. There are no stocks in the Sector SPDRs that are outside the S&P 500. Since that time, others have introduced finer slices of the market where industries are rolled up into sectors. We only have nine sector SPDRs because the 10th S&P sector only has nine stocks. You can't make an ETF with that small of a number. So we decided to roll those nine stocks into Technology because they have a very high correlation to each other.
IU: You've just cut expense ratios on all nine Sector SPDRs, haven't you?
Dolan: Those changes became effective on Jan. 31. When we launched them in 1998, their expense ratios were each at 65 basis points. As assets have grown, we've continued to lower expenses for everyone. Even though last year was brutal, we were able to shave fees on various administrative and marketing costs to drive expenses lower. Going from 23 to 21 basis points might not seem like much, but it represents an 8.6% reduction. On the other side, Vanguard moved its expense ratios in the sector space higher, from 22 to 25 basis points.
IU: What areas of expansion are you exploring?
Dolan: We've stuck to our main focus. And it has served us well. In December 1998, there weren't even 20 ETFs on the market. In fact, Northern Trust just announced they were going to close their 17 NETS. In the mid-1990s, Deutsche Bank launched a whole series of country-specific ETFs. And they closed within a year, if I remember correctly. So to launch nine in the late ‘90s was a significant event back then in the ETF world. And our assets have steadily grown. We had about $4 billion in assets to start 2003. Our high watermark was four months ago, when we had over $35 billion. So it has been a great ride.
IU: How do you view the competitive landscape?
Dolan: We were the first mover in sector ETFs. Then iShares came out with their series of sector products. Vanguard followed and now PowerShares has two sector ETFs. In the last couple of years, ProShares and Rydex have come out with leveraged sector products. According to a recent Morgan Stanley report, there are 152 pure sector and industry ETFs on the market now. And that's not even including the leveraged and inverse products. But we were the first and still the largest by far.
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