Market Overview

State Street Lowers ETF Fees -- Investors Win

State Street Lowers ETF Fees -- Investors Win

ETF sponsors such as Vanguard, Charles Schwab and even Fidelity Investments have led the way in paving new lower expense ratios for market-leading investment products. However, the competition for ETF assets has prompted many prominent brands such as State Street Global Advisors to review its pricing versus these low cost mavens.

This week, State Street announced it would be lowering its gross expense ratios for 41 funds in its ETF lineup. The full press release and complete list of funds can be viewed here.

While none of the fee breaks will extend to State Street's largest and most established offerings such as the SPDR S&P 500 ETF (NYSE: SPY) or SPDR Gold Shares ETF (NYSE: GLD), these changes do offer a significant reduction in total costs for end investors.

For example, the SPDR S&P 1500 Momentum Tilt ETF(NYSE: MMTM) and SPDR S&P 1500 Value Tilt ETF (NYSE: VLU) will both have their underlying management fee cut by as much as 66 percent from 0.35 to 0.12 percent annually. The SPDR Barclays Aggregate Bond ETF (NYSE: LAG) will experience a 52 percent reduction in expenses from 0.21 to 0.10 percent.

Related Link: Energy, TIPs And Biotechnology ETFs To Watch This Week

The reduction in fees for so called “smart beta” offerings such as MMTM represent a significant step forward for the ETF universe.  Historically, indexes of this nature would command a higher fee as more frequent sorting and rebalancing of the underlying holdings is required.

However, ETF sponsors are realizing that passing on cost savings to consumers can help attract assets as they compete with high-fee actively managed mutual funds, hedge funds and other diversified alternatives.

State Street’s changes will bring many of these funds closer in line with top competitors in each category. LAG, for instance, will now sport a 0.10 percent gross expense ratio compared to 0.09 percent for the well-known iShares Core U.S. Aggregate Bond ETF (NYSE: AGG). This allows for these funds to participate on a more level playing field and give investors more attractive options to choose from.

It should be noted that the underlying expense ratio of an ETF is just one component to the total cost of ownership. Transaction costs, bid/ask spread and tracking error can also play a factor in both the ETF trading process as well as holding the funds for extended periods of time.

The funds with the lowest expense ratios, highest daily liquidity, and best overall tracking to their index will ultimately prove to be the cheapest to own.

Posted-In: State Street Global AdvisorsSector ETFs Specialty ETFs Trading Ideas ETFs Best of Benzinga


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