Initiative urges investors to look at all aspects of total cost of ownership, where liquidity is an important consideration
State Street Global Advisors, the asset management business of State Street Corporation (STT) and creator of the world’s first ETFs,1 today launched a new initiative aimed at educating investors about the importance of ETF liquidity. The integrated program, which will include thought leadership, social media promotion and advertising, launched across the US today and is expected to run through the fourth quarter.
“We want investors to understand that liquidity attributes can have a significant impact on the total cost of ownership, even though expense ratio is frequently emphasized,” said Sue Thompson, head of SPDR® Americas Distribution for State Street Global Advisors.
The first phase of the initiative called “It’s Liquidity Time” will focus on generating greater awareness of the importance of liquidity and the impact it can have on trading costs.
“As a leader in ETF liquidity, our strategy is to help investors make more informed investment decisions based on our deep expertise,” said Stephen Tisdalle, chief marketing officer of State Street Global Advisors. “This initiative will educate investors on how their actual portfolio costs can shift during periods of volatility and feature the ways investors are incorporating liquidity analysis into their strategies.”
State Street Global Advisors’ SPDR family of ETFs, like the SPDR S&P 500® ETF (SPY) and the SPDR Dow Jones® Industrial Average ETF (DIA), are among the most liquid in the industry comprising nearly half of all US-listed ETF trading volume2 and include 7 out of the 10 most liquid ETFs invested in US equities.3
Liquidity’s impact on total ETF costs
“Depending on your rebalancing frequency, trading costs can significantly accumulate and have a larger impact on the total cost of ownership than any expense ratio difference between two ETFs. This underscores why liquidity analysis has to be a part of any due diligence process prior to implementation,” said Matthew Bartolini, CFA, head of SPDR Americas Research for State Street Global Advisors.
As an example, for sector rotation strategies with a monthly rebalance, the liquidity profile of the sector ETF used can dramatically affect the total cost of the strategy over a one-year period. The table below illustrates how an ETF with a higher expense ratio can be the more cost effective option after accounting for trading costs. The less liquid, lower fee fund actually ends up being 73 percent more expensive than the more liquid, higher expense ratio sector ETF after a full year.
|ETF Type||Average Gross Expense Ratio %||Average Bid/Ask Spread %||Trading costs for two trades a month||Total Cost Average over One Year|
Source: Bloomberg Finance, L.P., SPDR Americas Research, as of March 31, 2019. For illustrative purposes only. The information above does not reflect individual purchases and sales of funds.
For more information on the different use cases that are additive to an ETF’s liquidity profile, including options and short-selling, please visit spdrs.com/liquidity. State Street Global Advisors is uniquely adept at understanding liquidity given SPDR ETFs make up nearly half of all US-listed ETF trading volume, have the most options open interest, and are the most heavily shorted suite.4
About SPDR Exchange Traded Funds
SPDR ETFs are a comprehensive family spanning an array of international and domestic asset classes. SPDR ETFs are managed by SSGA Funds Management, Inc., a registered investment adviser and wholly owned subsidiary of State Street Corporation. The funds provide investors with the flexibility to select investments that are aligned to their investment strategy. Recognized as an industry pioneer, State Street created the first US listed ETF in 1993 (SPDR S&P 500® – Ticker SPY) and has remained on the forefront of responsible innovation, as evidenced by the introduction of many ground-breaking products, including first-to-market launches with gold, international real estate, international fixed income, and sector ETFs. For more information, visit www.spdrs.com.
About State Street Global Advisors
For four decades, State Street Global Advisors has served the world’s governments, institutions and financial advisors. With a rigorous, risk-aware approach built on research, analysis and market-tested experience, we build from a breadth of active and index strategies to create cost-effective solutions. As stewards, we help portfolio companies see that what is fair for people and sustainable for the planet can deliver long-term performance. And, as pioneers in index, ETF, and ESG investing, we are always inventing new ways to invest. As a result, we have become the world’s third largest asset manager with nearly US $2.80 trillion* under our care.
* This figure is presented as of March 31, 2019 and includes approximately $33 billion of assets with respect to SPDR products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated.
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1 ETFs 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).
2 Bloomberg Finance LP, as of 03/8/2019. Based on 180 day dollar trading volume. Past performance is not a guarantee of future results.
3 Bloomberg Finance LP, as of 03/8/2019. Based on 180 day dollar trading volume and geography focus of US Equities. Past performance is not a guarantee of future results.
4 Bloomberg Finance LP, as of 03/8/2019 based upon the open interest notional amounts of all options contracts tied to ETFs, grouped by ETF issuer.