State Street Global Advisors, in what appears to be a riposte to a move by Vanguard just before Christmas, cut expense ratios on its nine “Select Sector” funds, leaving their prices 1 basis point lower than competing funds from Vanguard.
In a regulatory filing effective Jan. 31 , Boston-based SSgA said that expense ratios on all nine of its sector ETFs would be lowered by 10 percent, or 2 basis points, to 0.18 percent.
On the surface, the move appears to be a response to a price-cutting move made by Valley Forge, Pa.-based Vanguard in late December. At that time, Vanguard said it was able to cut expense ratios on its family of sector funds by some 20 percent—to 0.19 percent each—thanks to gains in economies of scale and growth in assets.
“It looks like we are responding to Vanguard, but it was coming,” Dan Dolan, director of Wealth Management Strategies for the Select Sector SPDR Trust, told IndexUniverse.com in a telephone interview. The board of directors had decided to lower fees on the suite of SPDR sector ETFs at its last meeting in November, but an announcement could only be made once a prospectus was filed with the Securities and Exchange Commission, which happened today, Dolan noted.
“It was purely a result of asset growth,” Dolan said of the move. The Select Sector SPDR Trust, which slices the S'P 500 into nine sector ETFs, saw its average monthly assets rise by 32 percent in 2011, or some $10.5 billion, according to company data. Funds like the Utilities Select Sector SPDR Fund (NYSEArca:XLU - News) saw assets more than double in 2011 to $7.7 billion, the company said.
“The economy notwithstanding, 2011 was a banner year for us, both in terms of the increase in our average assets and the growth in our overall year-end assets,” Dolan was quoted as saying in a press release.
Vanguard, which has rejected the notion of any sort of price-war strategy with other ETF providers, emphasized that it operates its funds “at cost,” meaning their expense ratios reflect simply those operational costs.
“We are not engaging in marketing one-upmanship with respect to expense ratios,” a company representative told IndexUniverse. The company has addressed the issue before, most recently in a published blog about the issue of cost cutting.
Will Investors Take Notice?
When the Select Sector SPDR family of ETFs first came to market more than a decade ago, they each had annual expense ratios of 0.65 percent, and prices have consistently dropped since, reflecting the company’s “commitment” to lower fees, Dolan said.
Still, whether the lowest-in-class price tag will give the SPDR sector funds a competitive edge against Vanguard’s suite of funds remains to be seen.
“The actual expense ratio is a concern, but the liquidity—how well they trade—is also key,” Dolan said.
All nine SPDR sector ETFs trade at “penny-wide spreads,” and now they come with the lowest price tag in the market.
“Those two factors make a difference,” said Dolan.
By comparison, Vanguard's funds trade at spreads ranging from 2 cents to 35 cents. But other important factors playing a role on how successful ETFs are with investors and traders include how they track their indexes and overall returns, the Vanguard representative noted.
The funds on which SSgA cut expense ratios include:
- Consumer Discretionary Select Sector SPDR Fund (NYSEArca:XLY - News)
- Consumer Staples Select Sector SPDR Fund (NYSEArca:XLP - News)
- Energy Select Sector SPDR Fund (NYSEArca:XLE - News)
- Financial Select Sector SPDR Fund (NYSEArca:XLF - News)
- Health Care Select Sector SPDR Fund (NYSEArca:XLV - News)
- Industrial Select Sector SPDR Fund (NYSEArca:XLI - News)
- Materials Select Sector SPDR Fund (NYSEArca:XLB - News)
- Technology Select Sector SPDR Fund (NYSEArca:XLK - News)
- Utilities Select Sector SPDR Fund (NYSEArca:XLU - News)
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