As the exchange-traded fund industry matures, the company that invented the ETF, State Street Global Advisors, is looking to the future with more active management as well as portfolio construction that combines ETFs with mutual funds.
State Street’s first ETF, the SPDR (SPY) pegged to the S&P 500 equity index, marked its 20th anniversary this year, and in the last two decades the ETF universe has grown into a vast marketplace that offers advisors many options for building client portfolios, according to David Mazza, State Street’s head of ETF investment strategy.
“We focus a significant amount of resources on the advisor community,” Mazza said Thursday at the Morningstar ETF Conference in Chicago, where State Street won nine awards in forty categories. (SPY was not one of the winners, but SPDR Gold Shares (GLD) won in the precious metals category.)
Active management has become a focus for State Street as the firm’s ETF investment strategists work with advisors who are seeking income-producing portfolios yet are concerned about interest rate risk. The firm is finding solutions that combine both ETFs and mutual funds in client portfolios, Mazza said.
“For many years there seemed to be difficulty understanding how to use a passive ETF that trades all day versus an actively managed mutual fund that prices at its end-of-day net asset value,” Mazza said. “What we’re seeing as the ETF marketplace has evolved is many more offerings across asset classes. Advisors now view ETFs as a cost-efficient, liquid and transparent vehicle and not just a passive solution.”
For example, he said, advisors can pair alternative long/short go-anywhere mutual funds with three or four SPDR ETFs that focus on shorter-duration exposure, such as short-term corporate bonds, short-term high yield and bank loans. These include the following ETFs:
1) Passive SPDR Barclays Short Term Corporate Bond (SCPB)