Vanguard and iShares are no longer the lowest cost ETF providers in the market. State Street, the third largest ETF provider after Vanguard and iShares, has joined the pack. On Monday it announced big cuts in the expense ratios of 15 SPDR ETFs to levels at or below the lowest in the industry and the formation of SPDR Portfolios ETFs, which contain those 15 ETFs.
"Investors have been asking us to provide these solutions to offer them a greater choice for low-cost ETFs," said Nick Good, co-head of the Global SPDR business at State Street Global Advisors (SSGA), in a statement. "The launch of the SPDR Portfolio ETFs provides a solution that meets this growing demand."
The SDPR Portfolio ETFs comprises 15 existing funds, including three that will track new indexes, and all are available for purchase commission-free on TD Ameritrade's new ETF Market Center starting Tuesday. The dozen other ETFs have all been renamed as an "SPDR Portfolio."
"Investors seem to gravitate toward lower cost products," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. "State Street is now fighting for more market share. It was a long time coming. Fees were in many cases highly expensive and not well suited to a fee-based approach."
Not anymore. The SPDR Portfolio S&P 500 Growth ETF (SPYG), which used to charge an expense fee of 15 basis points, now charges four, the same as Vanguard. Its emerging markets ETF (SPEM) charges 11 basis points, a fraction of the 59 basis points it used to charge, and less than the 14 basis points cost for emerging market ETFs from Vanguard and iShares.
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"Research has long shown that asset allocation decisions explain over 90% of the variance in portfolio returns," said Matt Bartolini, head of SPDR Americas Research, in the statement. "Simply put it all starts with asset allocation. And today's low return expectations make an ultra-low-cost, diversified core more important than ever, as costs accumulate over time, eroding a portfolio's total return."
