Q&A: State Street Global Advisors – “Fixed income ETFs continue to gather assets.”

A precursor in the ETF world, State Street Global Advisors launched the first US-listed exchange traded fund, the $280 billion SPDR S&P 500 ETF listed on the New York Stock Exchange, which is still the largest and most widely traded in the market, and which recently celebrated its 25 th anniversary.

Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors, explains why his firm restructured some of its portfolio to provide low-cost options to investors, how ETFs can help Americans build their retirement, and how investors are becoming more hands on with their ETF investments.

What was one of the big trends of 2017?

Fixed income ETFs continued to gather assets. They took in over $100 billion of inflows for the first time in 2017, which was essentially 28 percent of their start-of- the-year assets. That was a pretty big jump for them. A lot of that had to do with the demographic shift that we’re going through and the search for stable and reliable income. Fixed income ETFs, particularly within the investment-grade space, can provide that yield pick-up that investors may need without reaching too down in the capital structure.

What were some of the highlights for State Street?

Overall we took in $34 billion of inflows. For us, one of the big things that characterized it was the restructuring of our SPDR portfolio of ETFs. We took 15 existing funds with established assets under management and we lowered the fees for 15 ultra low-cost ETFs with average basis points of less than 6. We lowered the cost base. We’ve actually taken $11 billion of inflows since we restructured in October. There was a lot of positivity.

We also saw a noticeable uptick in SPY. Sector ETFs took about $10 billion on the year. Investors are more comfortable using ETFs in a very active manner. We’re seeing more active decision making in the implementation being used with index-based vehicles. That really is a testament to the ETF industry and to investors’ portfolios.

What’s your outlook for 2018?

January already set out a record in inflows, about $78 billion for the industry. While this $78 billion might be recorded as passive auto-pilot money, for me it wasn’t the case. Those were active decision directing those inflows to some degree and that’s why we saw significant outflows once the market sold off in February.

Now we’re starting to go back positive from an equity perspective. We’re starting to see more risk return to the market, more flows into risk assets like equity, particularly US equities.

At State Street we’re really focused on having constructive conversations with our clients on how to allocate capital in these environments, potentially rising interest rates and an extended bull market.

We’re having a lot of conversations on how to create core portfolios. We’re going to be very focused from a portfolio construction perspective.

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