If you stop to think about it, passive ETFs are complicated creatures. Someone has to maintain an index for the ETF to follow, someone else has to buy and sell the stocks that comprise it, and someone else has to make the market for people to buy and sell it. Then of course you have all the arbitrageurs out there trading on the underlying securities and keeping prices in line. Yes, the whole process ends up being loads more efficient than a mutual fund, but it still seems like a fair amount of work.
But when you have billions of dollars under management, you don't have to charge so much to cover all those costs. And as assets grow, those expense ratios are falling far beyond what would seem possible, as the latest rock-bottom ETF fee cuts from State Street indicate. The supremely woke bank behind the SPDR series announced Monday that it was slashing prices on 15 of its index-based ETFs, several to just 0.03 percent, while moving away from Russell indices to its own proprietary lists.
Needless to say, it's a pretty competitive move:
"Each fund in the SPDR Portfolio suite is priced equal to or below the lowest fee ETF in the category," said Rory Tobin, co-head of the Global SPDR business at SSGA. “Some of these changes in price are significant - such as offering Emerging Markets exposure at 11 basis points. In addition, these funds have a combined total of over $11B2 in assets and trade actively, so there is no incubation period needed."
Here's the full list:
Previous Name and Ticker
Previous Expense Ratio
New Name and Ticker
New Total Expense Ratio
SPDR Russell 3000® ETF (THRK)
SPDR Portfolio Total Stock Market ETF (SPTM)
SPDR Russell 1000® ETF (ONEK)
SPDR Portfolio Large Cap ETF (SPLG)
SPDR S&P 1000® ETF (SMD)
SPDR Portfolio Mid Cap ETF (SPMD)
SPDR Russell 2000® ETF (TWOK)
SPDR Portfolio Small Cap ETF (SPSM)
SPDR S&P 500 Growth ETF (SPYG)
SPDR Portfolio S&P 500 Growth ETF (SPYG)
SPDR S&P 500 Value ETF (SPYV)
SPDR Portfolio S&P 500 Value ETF (SPYV)
SPDR S&P 500 High Dividend ETF (SPYD)
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
SPDR S&P® World ex-US ETF (GWL)
SPDR Portfolio World ex-US ETF (SPDW)
SPDR S&P Emerging Markets ETF (GMM)
SPDR Portfolio Emerging Markets ETF (SPEM)
SPDR Bloomberg Barclays Aggregate Bond ETF (BNDS)
SPDR Portfolio Aggregate Bond ETF (SPAB)
SPDR Bloomberg Barclays Long Term Corporate Bond ETF (LWC)
SPDR Portfolio Long Term Corporate Bond ETF (SPLB)
SPDR Bloomberg Barclays Intermediate Term Corporate Bond ETF (ITR)
SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB)
SPDR Bloomberg Barclays Short Term Corporate Bond ETF (SCPB)
SPDR Portfolio Short Term Corporate Bond ETF (SPSB)
SPDR Bloomberg Barclays Long Term Treasury ETF (TLO)
SPDR Portfolio Long Term Treasury ETF (SPTL)
SPDR Bloomberg Barclays Short Term Treasury ETF (SST)
SPDR Portfolio Short Term Treasury ETF (SPTS)
Your move, Vanguard.
It's not too ludicrous by now to posit that at some point in the not-terribly-distant future, BlackRock or State Street or Goldman “Just Add Butter” Sachs will give us the world's first zero-expense-ratio ETF. Maybe it'll come as a loss-leader to get investors interested in other, non-free offerings. Enjoy your Totally Free Large-Cap Equity ETF? Why not try out our smart beta and emerging market offerings?
Or perhaps one of the bigger players will go to zero in an Amazon-like move to just drive everyone else out – or force them, Borg-like, to accept assimilation into a single throbbing exchange-traded hivemind. Even without someone taking that extreme step, it's easy to see how the current war between the biggest players in the market will start claiming some collateral damage among medium-sized firms.
For instance, when Goldman cut some of its smart-beta fees last month, Moody's issued a note that sounded Smart-Beta Price War Is Bad For All Managers
">pretty darn pessimistic for those downstream:
According to Moody's the prospect of an ETF smart-beta price war is "is credit negative for traditional active equity players entering the smart-beta realm, including Legg Mason, Inc., Franklin Resources, Inc. and Janus Capital Group Inc." It is also bad news for "smart-beta managers including Invesco Ltd., Blackrock, Inc., State Street Corporation, and WisdomTree, which are likely to respond with price cuts on existing products."
The economics of a 3 basis-point expense ratio only make sense when you've got an enormous load of assets under management. The price war creates a feedback loop whereby the biggest managers can charge the lowest fees, attracting more assets, thus allowing them to lower fees more, etc. Unless you're accustomed to using nine-plus digits in your AUM – or else your hawking something dumb and niche – you're toast.
Or maybe this is the logical endpoint for the old passive-funds-are-basically-Marxism line of argument. Liberal policymakers are constantly dreaming up ways for the government to improve retirement security, most of which are just variations of ways of getting everyone into responsible 60-4o portfolios. If no one's making money on ETFs now anyhow, why not just have the government to construct a few indices and build the relevant portfolios, then let the market handle the rest? (This is a rhetorical question.)