Reading all the articles the last few days on the race to zero, I was reminded of a panel I attended at InsideETFs last month discussing the present and future state of the ETF industry. During the conversation, the panelists dug into this topic—a prominent theme at the conference—as ETF issuers continually offer lower-cost products. Rory Tobin, the Head of our Global ETF business, was asked whether the right price for simple beta ETFs is zero. His reply, “In my view, the right price for anything you value would never be zero,” was dead on. When so many investors initially look to ETFs purely because they are a low-cost option, what is the true ‘value’ of the ETF beyond a simple expense ratio? As an asset management executive, I see the inherent value of this fund structure at work every day, and wanted to share my perspective on the key ‘value-add’ that ETFs can provide to all investors.
The right price for anything you value would never be zero.1
ETFs deliver value for investors for many reasons. When Cerulli asked advisors about the benefits of ETFs in a 2017 study, they noted not just low fees but also diversification, ease of exposure, transparency, and intraday pricing as some of the key attributes of the vehicle. Many of these features tie back to the ways in which ETFs have democratized investing by making previously difficult-to-access market segments available to all. An individual investor can now gain exposure to an entire market segment in one trade, have complete visibility into the underlying securities, and see the real-time market value of their holdings at any point during the day. Clearly, the structure offers multiple dimensions of ‘value’ above and beyond the price point.
How do you ensure a foundational system that supports the ongoing benefits on an ETF? It starts with purpose and deliberate partnership with investors and markets to create sound products and a healthy ecosystem for ETFs. Beneath each “benefit” should be a disciplined and rigorous commitment to ensuring that investors continue to see each of those benefits in the ETF marketplace, every day. I believe, at SPDR, we are dedicated to providing this type of value:
1. Expanded access to market exposures
There are over 2,000 US-listed ETFs available in the marketplace today, so choices abound. In the US SPDR range alone, we offer 140 ETFs, allowing each investor to precisely meet their portfolio needs, whether it be investing in simple beta or future technologies, core fixed income or active total return. Each ETF represents our expert product development and research capability, or the best insights from our selectively chosen partners. So whatever the desired exposure might be, individuals and advisors alike gain access to the industrial-strength portfolio management techniques and expertise of State Street Global Advisors.
When my team and I evaluate potential new products for launch or enhancements to our existing lineup, we think about the landscape of products which already exist, and areas where our expertise aligns with client needs. We provide tools that can help construct the best portfolios for meeting investors’ long-term objectives. Currently, fixed income and active management are two areas where we feel ETFs can add considerable value.
- Fixed income ETFs support strategic and tactical strategies by empowering investors to create custom portfolios across a wide array of bond sub-sectors, easily replicate beta, and seek alpha by rotating efficiently in and out of asset classes.
- We believe actively managed ETFs capture the key benefits of the ETF wrapper—including improved transparency and increased liquidity—with the additional benefit of a manager who can adapt to shifting market conditions.
Investors often cite liquidity as one of the top reasons for using ETFs. The ability to create and redeem shares by tapping into the primary market liquidity of the securities within the ETF is one of the most important benefits of the ETF structure. Investors should utilize the full range of trading resources available, including subject matter experts like our SPDR Capital Markets Group here at State Street Global Advisors to gain trading efficiencies.
3. Low total cost of ownership
Total cost of ownership—which covers expense ratios, commissions, bid/ask spreads and other implicit costs—is a key part of the value ETFs offer investors. Costs do matter, and a lower total cost of ownership means better returns for investors. But the bottom line is, basis points—no matter how low—are only a part of the equation. Total cost of ownership has long been a key part of the value we seek to offer investors, to ensure they understand how to perform due diligence on individual products, including our own. It’s a topic that we were conscious of when launching the first US-listed ETF in 1993.
ETFs deliver value by offering expanded market exposures via an incredibly convenient, portable investment instrument that is transparent, liquid and low cost—altogether creating a powerful value proposition for investors. As the creator of the world’s first ETFs,2 SPDR focuses on delivering value in how we construct ETFs, and how we support the products on our partner platforms, and we plan to continue offering that value to investors for years to come.
1Rory Tobin, Head of Global ETF Business, State Street Global Advisors, speaking at InsideETFs 2019.
2ETFs managed by State Street Global Advisors have the oldest inception dates within the US, Hong Kong, Australia, and Singapore. State Street Global Advisors launched the first ETF in the US on January 22, 1993; launched the first ETF in Hong Kong on November 11, 1999; launched the first ETF in Australia on August 24, 2001; and launched the first ETF in Singapore on April 11, 2002.