State Street Global Advisors’ (SSGA) decision to take a major revenue cut on its S&P 500 ETF is paying dividends for the US giant, leaving questions for rivals BlackRock and Vanguard.
According to data from Morningstar, the SPDR S&P 500 UCITS ETF (SPY5) – which cut fees from 0.09% to 0.03% on 23 October – has seen over €1bn inflows since the announcement, as at 17 November.
This is the only S&P 500 UCITS ETF to register over €1bn inflows since the aggressive fee reduction. The Vanguard S&P 500 UCITS ETF (VUSA) is closest behind with €839m inflows while BlackRock and Invesco’s ETFs have registered €512m and €484m net new assets, respectively.
Chart 1: S&P 500 UCITS ETF inflows since 23 October
Name | Flow YTD to 23 October | Flow 23 October to 17 November | Total AUM | TER |
|---|---|---|---|---|
SDPR S&P 500 UCITS ETF (SPY5) | €35m | €1.1bn | €6.5bn | 0.03% |
Vanguard S&P 500 UCITS ETF (VUSA) | €3.2bn | €839m | €38.8bn | 0.07% |
iShares Core S&P 500 UCITS ETF (CSPX) | €2.7bn | €512m | €61.4bn | 0.07% |
Invesco S&P 500 UCITS ETF (SPXS) | €2.2bn | €484m | €18.7bn | 0.05% |
Source: Morningstar
It is unlikely BlackRock or Vanguard will follow suit given this would be over half the revenues on each product, a huge business decision in a market where pressures on profitability are immense.
VUSA and the iShares Core S&P 500 UCITS ETF (CSPX) carry fees of 0.07%, four basis points higher than SPY5, which is a huge gap in a core exposure such as the S&P 500 where bid-ask spreads are tight and the tracking error is minimal.
Over the past 30 days, for example, CSPX’s bid-ask spread has been the tightest at 0.02% versus 0.03% for VUSA and 0.05% for SPY5, according to data from Bloomberg Intelligence.
While SSGA remains some way behind its rivals regarding assets under management (AUM), the recent inflows could represent a change in fortunes for an ETF issuer that is a sleeping giant in European ETFs despite entering the market in 2001.
BlackRock and Vanguard – as well as other ETF issuers – are under pressure to respond if they want to retain their market leader status in a core exposure such as the S&P 500 where costs are everything.
In the US, SSGA built a reputation by launching the first S&P 500 ETF, which remains the world’s largest ETF, however, the likes of BlackRock and Vanguard are starting to catch up.
The situation is entirely opposite in Europe with SSGA backed into a corner as highlighted by the measly €35m inflows into SPY5 in 2023 until the fee cut.
Fund selectors can now take advantage of the attractive fees on offer and SSGA’s rivals must respond if they want to retain market share over the next five years.
