State Street Global Advisors, the No. 2 U.S. exchange-traded
fund firm, changed indexes on Monday on five of its ETFs from
benchmarks provided by KBW to a quintet from Standard ' Poorâs in
a shift that belies a bit of intrigue involving Invesco
Indeed, four of the KBW indexes SSgA is dropping will be going
to four new ETFs PowerShares plans to roll out Nov. 1. One industry
source told IndexUniverse that SSgA sped up the transition to the
new indexes before the launch date of the PowerShares fundsâa
move PowerShares hoped to block, possibly with legal action.
Officials at both companies declined to comment on the timing
and legal issues surrounding the index changes and the PowerShares
An SSgA official said his Boston-based firm made the changes to
line up the indexes on the five finance-related ETFs with its other
sector funds, all of which are based on S'P indexes. He said the
average number of holdings across the five affected ETFs rose to 47
from 29 under the KBW indexes, meaning the newly constituted ETFs
are more diversified than before.
Wheaton, Ill.-based PowerShares was meanwhile interested in
expanding its relationship with Keefe, Bruyette 'Woods and taking
advantage of its KBW lineup of finance-specific indexes.
PowerShares has a few products using KBW products, including the
$21.7 million KBW High Dividend Yield Financial Portfolio
SSgA said in a press release today that its five funds will
retain their tickers, but that the company renamed the funds,
replacing the word âKBWâ with the word âS'P.â Their new
names and approximate assets are:
- SPDR S'P Bank ETF (NYSEArca:KBE), $1.15 billion
- SPDR S'P Capital Markets ETF (NYSEArca:KCE), $30.4
- SPDR S'P Insurance ETF (NYSEArca:KIE), $113.3 million
- SPDR S'P Mortgage Finance ETF (NYSEArca:KME), $3.2
- SPDR S'P Regional Banking ETF (NYSEArca:KRE), $47.1
The new and old indexes on the SSgA funds are:
- KBE:S'P Banks Select Industry Index in place of the KBW Bank
- KCE:S'P Capital Markets Select Industry Index in place of the
KBW Capital Markets Index
- KIE:S'P Insurance Select Industry Index in place of the KBW
- KME:S'P Mortgage Finance Select Industry Index in place of
the KBW Mortgage Finance Index
- KRE:S'P Regional Banks Select Industry Index in place of the
KBW Regional Banking Index
Industry sources said one consideration investors in the SSgA
funds might not have been fully aware of is that the index changes
required rebalancing and even reconstitution, which could leave ETF
shareholders with tax consequences.
That doesnât necessarily mean an unexpected tax bill; the
changes could leave some investors holding the funds in taxable
accounts with losses to harvest at tax time. It would all depend on
the holding periods and the cost bases. Some tax consequences could
also be smoothed at the fund level.
The SSgA official declined to discuss the tax consequences of
the changes, saying it wasnât yet appropriate considering all the
variables involved. But he did say that the reconstitution and
rebalancing was mostly about adding new securities and trimming
weightings of existing holdings, rather than completely eliminating
One industry source said that of the five SSgA ETFs undergoing
index changes, KRE faced the biggest changes, with more than a
third of the portfolio needing to be reconstituted to match its new
The SSgA official said all the variables of the reconstitutions
and rebalancing werenât immediately at his disposal, but
reaffirmed that all the reconstitutions were more about adding new
constituents and trimming existing ones rather than dumping stocks
that were part of the old index.
KRE also happens to be one of the more heavily shorted ETFs in
the market, and the index change almost certainly created
additional challenges to short-sellers or to parties lending KRE
shares to short-sellers.
When we last looked at short interest at the end of September,
KRE had 2.5 times as many shares short than shares long, putting it
on IndexUniverseâs âVery Very Shortâ list.
Creation and redemption activity on Friday tracked by
IndexUniverse provided some clues as to how investors were
preparing for the change. For example, on Oct. 21, the trading day
before the index changes, investors yanked $58 million out of
KREâa sum that amounted to 11 percent of the fundâs outstanding
At the same time, KBE, the $1.15 billion fund now called the
SPDR S'P Bank ETF, had creations last Friday of almost $89 million,
amounting to 8 percent of the portfolio.
It wasnât immediately clear if those sizable creations had
anything to do with the index change on the ETF.
The PowerShares Gambit
While itâs clear that PowerShares was seeking KBWâs
expertise in the realm of finance-industry indexation, itâs not
at all clear that it will have the same good fortune SSgA has had
in attracting assets to the funds it hopes to roll out on Nov.
Industry sources say itâs tickers people remember, and not
So, even though the five SSgA funds are not the same as they
were last Friday, they still have the same tickers, which isnât a
trivial advantage in the increasingly competitive world of ETF
PowerShares said in a press release that the four PowerShares
finance-related ETFs and their indexes are:
- PowerShares KBW Bank Portfolio (NYSEArca:KBWB), which is
based on the KBW Bank Index
- PowerShares Regional Banking Portfolio (NYSEArca:KBWC), which
is based on the KBW Regional Banking Index
- PowerShares Capital Markets Portfolio (NYSEArca:KBWC, which
is based on the KBW Capital Markets Index
- PowerShares Insurance Portfolio (NYSEArca:KBWI), which is
based on the KBW Insurance Portfolio Index
Tellingly, PowerShares said in its press release that the
fundsâ old tickers were the tickers that SSgA used when its ETF
were based on the KBW indexes.
Itâs worth repeating that SSgA is still using those same
tickers in the reconstituted SPDR funds that are now based on S'P
First There Was The âTicker Tangleâ
Interestingly, this isnât the first time SSgA and PowerShares
have mixed it up over the marketing of their ETFs.
SPDR, the trademark holder of SSgA tickers, sued PowerShares in
July 2010 for too closely copying SSgA tickers on a lineup of nine
small-cap sector funds PowerShares had launched.
For example, the PowerShares S'P SmallCap Financials ETF
(NasdaqGM:PSCF) was originally trading under the ticker
âXLFSââbearing more than a passing resemblance to âXLF,â
the ticker of SSgAâs nearly $5 billion Financial Select Sector
SPDR Fund (NYSEArca:XLF).
Don't forget to check IndexUniverse.com's ETF Data
2011 IndexUniverse LLC
. All Rights Reserved.