State Street To Take On IWM With New ETF

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State Street Global Advisors, the second-largest ETF provider in the U.S., on Tuesday is bringing to market a "me-too" equities ETF built around the Russell 2000 Index of small-cap stocks, a popular pocket of the investment universe dominated by the huge iShares Russell 2000 ETF (NYSEArca:IWM).

The SPDR Russell 2000 ETF (NYSEArca:TWOK) will track through representative sampling the broad benchmark comprising U.S. small-cap stocks. The strategy is vastly similar to the approach iShares, Vanguard and Charles Schwab, to name a few, have taken to tap into the small-cap universe through various benchmarks.

IWM is the largest fund in a small-cap segment comprising nearly 20 funds. Its $23.3 billion in assets have been gathered over a 13-year period-and it has roughly twice the assets of its nearest competitor.

It's hard to imagine exactly how State Street will chip away at IWM's market share, unless it's looking to aggressively compete on price. But the latest prospectus filed with regulators didn't disclose TWOK's planned fees, and company officials declined to comment on the price and its plans for the fund until it starts trading tomorrow.

IWM costs 0.24 percent, or $24 per $10,000 invested, but it's not the cheapest ETF in the small-cap U.S. equities space. That distinction goes to the Schwab U.S. Small Cap ETF (NYSEArca:SCHA), which costs 0.08 percent, or $8 per $10,000 invested. The Vanguard Small-Cap ETF (NYSEArca:VB) costs 0.10 percent.

It's unclear why State Street would add this fund to its lineup now. It could be that the firm is looking to expand its growing roster of Russell-linked ETFs so that clients that favor Russell indexes will be able to find them within the State Street stable of exchange-traded funds.

'The launch of TWOK by itself seems like a me-too product, but if it's viewed in the context of the scheduled name/ticker/index changes of three existing funds, you can see it as part of a shift away from Dow Jones indexes to Russell,' IndexUniverse ETF analyst Howard Lee said.

'When it's all said and done, State Street will be providing a full suite of Russell ETFs,' he said.

In question are three ETFs that were to drop their Dow Jones indexes and tickers sometime around the end of June for Russell indexes instead. The changes will still take place, according to a statement SSgA filed with regulators in April, but were postponed to coincide with the launch of TWOK. They are:

  • The SPDR Dow Jones Total Market ETF (NYSEArca:TMW) will become the SPDR Russell 3000 ETF (NYSEArca:THRK).
  • The SPDR Dow Jones Large Cap ETF (NYSEArca:ELR) will become the SPDR Russell 1000 ETF (NYSEArca:ONEK).
  • The SPDR Dow Jones Mid Cap ETF (NYSEArca:EMM) will become the SPDR Russell Small Cap Completeness ETF (NYSEArca:RSCO).

TWOK, along with the index changes in these three funds certainly help SSgA round out its Russell-based ETF offerings-some of which are tied to benchmarks first used for Russell ETFs that were shuttered last summer.

For example, in February, State Street launched the SPDR Russell 2000 Low Volatility ETF (NYSEArca:SMLV), with an expense ratio of 0.25 percent. It first appeared as a Russell-branded ETF that traded under the symbol "LVOL."

There's also the view that U.S. small-cap stocks have been a popular segment with investors, who have watched IWM tack on gains of more than 19 percent so far this year, after climbing 25 percent in 2012.

Since July 1, IWM has attracted nearly $1 billion in net new assets, putting total year-to-date net inflows at $3.62 billion, according to data compiled by IndexUniverse.

SSgA also sponsors three S&P 600-based small-cap ETFs that dissect the space through growth and value metrics.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: ELR , EMM , IWM , SCHA , TMW

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