State Street Global Advisors expanded this week its
collaboration with Russell Indexes by launching the market's
cheapest Russell 2000 ETF, 'TWOK,' and refitting three existing
Dow Jones-linked funds to Russell benchmarks.
Jim Ross, the firm's global head of SPDR
, caught up with IndexUniverse's Cinthia Murphy to talk about the
rollout, as well as how State Street is positioned for the
future, and whether the massive SPDR Gold Shares (NYSEArca:GLD)
redemptions are keeping him up at night.
IU.com:The SPDR Russell 2000 ETF (NYSEArca:TWOK) is in
many ways a "me-too" fund. Why tap into a segment that's well
covered by the likes of IWM?
We look at this more as an opportunity to bring institutional
quality indexes to the SPDR ETF lineup. We are bringing out a broad
set of Russell indexes-not just the Russell 2000-to SPDR
shareholders and potential SPDR shareholders. This was an
opportunity to leverage the institutional-grade product-development
skill of SSgA, along with institutional-quality indexes from
Russell for the market place.
IU.com:TWOK came to market as the cheapest Russell 2000
ETF. Is cost something SSgA is looking at more closely these
We are always looking into making sure our SPDR ETF family is
competitively priced, but this is not all about cost. We've talked
a lot about this before. It's about making sure we bring our
investors a full value proposition to the SPDR ETF family.
Far beyond pricing, we believe in partnering up with our clients
to ensure we have the right products for their investment
objectives. We continue to reshape a variety of different products,
and in an effort to make sure the products are right for the
investor, we expect to continue to do that over time.
IU.com:State Street is the second-largest ETF provider,
but do you worry at all that low-cost Vanguard is cutting closer
in terms of asset gathering, and may be threatening that ranking
I welcome the significant competition amongst ETF providers. It's
been there for a long time, and we welcome it. It's actually good
for the industry to have healthy competition; it's good for
investors, it's fundamentally good for the overall growth of the
ETF industry. It's not something I worry about:I think it's really
positive for the end investor and for the ETF industry as a
IU.com:How do you think State Street is positioned for
the next phase of growth in the ETF market, which some say will
be the distribution phase?
Competitively. We're very careful about not making forward-looking
statements, but I'm always looking to the continued development of
the ETF market and to recent trends-such as active ETFs, which
we've been sometimes a part of and sometimes a leader in.
We have what I call a consistent view of the marketplace and we
believe in the future of ETFs in general. We will continue to look
for ways to drive innovation and success rather than just driving
the number of funds in our lineup.
IU.com:Back to ETFs, you switched indexes from Dow Jones
to Russell benchmarks in three ETFs this week. Why make this an
index change rather than fund closures? Is there a tax reason to
do it this way?
If you close funds and open new ones, you would have a taxable
event for shareholders leaving that fund, and to the extent that
the indexes lined up pretty closely to the old indexes, it's a lot
more beneficial to existing shareholders to be transitioned to a
new benchmark. We've seen other large providers do similar
transitions in the past year. Anytime you can transition a fund to
a new benchmark versus closing and opening something new, that's
better for shareholders.
From a Russell perspective, 72 percent of institutional
investors use Russell indexes, so the scale and breadth of that
utilization was attractive to us, and there are more than $4
trillion of assets benchmarked to Russell U.S. equity indexes.
IU.com:Is there something that has made this index transition
easier to do now rather than, say, a few years ago? Why now?
We evaluate our lineup on an ongoing basis and look for any
opportunity we can to identify new and improved ways to access the
market. The Russell institutional heritage of their index family,
along with a strong desire to offer institutional-grade ETFs to
marketplace, really drove this decision.
IU.com:Is SSgA planning other Russell products or have
any plan of phasing-out existing Dow Jones products?
I want to be very clear:This wasn't anything done specifically
to Dow Jones. Dow Jones and S&P are now one company, and we
have a very broad relationship with S&P, and a broadening
relationship with Russell. We have other Dow Jones products. This
was simply an opportunity we saw to bring
institutional-quality-type products to a broad array of investors,
both institutional and retail.
IU.com:As a final thought, to touch on gold, has the
extent of outflows in GLD so far this year-$ 18 billion-surprised
you at all?
Great question. I think anytime you see a significant shift in
performance, as we've seen in the performance of gold, you'd expect
to see, in certain market conditions, outflows. When you look at
that, and parallel that to the significant inflows for the eight
years before that, it grew to the second-largest ETF for a long
time; it became a sizable ETF.
I can't say I anticipated the type of outflows we've seen this
year, but we continue to work with GLD shareholders on the case for
investing in gold, and we are making sure we reinforce the case
that was there when they chose to invest in GLD. We're there to
help those who want to transition out of the product, but our main
focus is making sure that any existing and future shareholders have
a good understanding of the diversifying aspects of gold in an
There's no question that, over the years, we've had investors
who've made a strategic investment in GLD, and then because of
their view on the marketplace, increased that with a tactical
overlay, and now we've definitely seen some of those overlays come
down as people are seeing other opportunities in the market.
Anytime you see a decline in an asset, you are going to have
investors re-evaluate where that asset fits in their portfolio. We
saw that in equities in 2008, and we are seeing that in fixed
income. I see this as a natural evolution of any market and any
IU.com:Do you think those outflows have been helping
drive gold's price lower?
We really don't believe there's any correlation between outflows of
a specific ETF to the broader gold market. The broader gold market
has so much liquidity and so much trading on a daily basis that
outflows of $15 billion to $18 billion seem significant to us in
the size of the fund, but in the overall gold market, they're not
There have been times when we've seen significant inflows into
GLD and significant price depreciation in gold. Historically,
there's not a traditional correlation between gold prices and
inflows/outflows from an ETF.
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