Boston firm now controls prime properties in ETF marketplace, rolls out fresh product lineup as well.
State Street Corporation of Boston, which owns State Street Global Advisors, has acquired the licensing rights to three of the largest and best-known ETFs from the American Stock Exchange: SPDRs (SPY), MidCap SPDR (MDY), and DIAMONDS (DIA). Collectively, these ETFs represent one-third of the ETF market.
The funds will continue to be listed on the Amex. But State Street is now exclusively responsible for their marketing, as well as for their daily custodial and managerial operations (which are handled by State Street Bank and Trust and SSgA respectively); Denver-based ALPS Distributors remains the distributor for the SPDR, MidCap SPDR and Diamonds trusts. The nine Select Sector SPDRs were not part of State Street’s recent licensing deal and will continue to be marketed by ALPS.
“It simply formalizes an arrangement that’s been in place for years,” says SSgA’s Gary MacDonald. “This transaction continues to strengthen the long-standing relationship between State Street and the Amex that started with the co-development of the SPDR Trust in 1993.”
In recent months, the Amex has seen its leadership in ETF listings challenged by the NYSE and Nasdaq. This latest move could signal a shift by the stock exchange to a revitalized focus on new ETF product development. With the marketing of these three ETFs now under the watchful eye of State Street, the Amex can center its attention on other matters.
“The assignment of licensing rights to State Street allows them to take a more direct role in the marketing of the SPDR and DIAMONDs products,” explains Cliff Weber, senior vice president of the exchange-traded marketplace for Amex. “Along with their upcoming product launches, this is just another aspect of their strengthened commitment to building their ETF presence. From our standpoint, it allows us to keep our efforts devoted to supporting all of our issuers and innovating the next generations of ETFs.”
At press time,State Street was planning a November 15 launch of nine new ETFs on the Amex. The funds would add to its growing lineup of ETFs that use the streetTRACKS and SPDR brand names.
One of the challenges State Street has faced, particularly with the streetTRACKS, has been a limited menu of funds. To combat this, the company has been adding to and realigning its ETFs to compete with similar products offered by rivals such as Barclays Global (iShares) and the Vanguard Group.
In November 2004, State Street introduced the streetTRACKS Gold Trust (GLD), which instantly became one of the most successful ETF product launches to date. Another initiative has been to replace lackluster offerings with more appealing ones. In March, the company announced its dismissal of the Fortune 500 Index in favor of the Dow Jones Wilshire 5000 Index with the streetTRACKS Total Market ETF (TMW).
With the announcement of more ETFs, State Street seems to be strengthening its indexing relationship with Dow Jones. Five of the new ETFs will track Dow Jones Wilshire indexes, which cover the large-, mid- and small-cap universe. These funds will compete head-to-head with iShares, which use well known index providers such as Standard & Poor’s and Russell to cover the same areas.
A number of dividend ETFs have been successfully launched over the past year, and the SPDR Dividend Fund will attempt to gain a share of this market as well. It will compete with the PowerShares group of dividend ETFs, which track Mergent indexes, as well as the iShares Dow Jones Select Index.
State Street also has launched three financial-sector ETFs. Keefe, Bruyette and Woods is the acting index provider for them, and while the company isn’t yet widely known in the indexing world, it’s a respected name in banking circles. The streetTRACKS KBW Bank, Capital Markets and Insurance ETFs will battle with financial sector funds from iShares, PowerShares and the Vanguard Group.