(Bloomberg) – State Street Global Advisors cut fees on three corporate bond exchange-traded funds as it seeks to increase its share of the burgeoning fixed-income ETF market.
The Boston-based issuer lowered expense ratios to 0.04%, compared to 0.07% for its corporate bond funds focused on short (SPSB ticker), mid-term (SPIB) and long-term ( SPLB).
The fee reduction is occurring as the use of these products increases among institutions, many of which have warmed to these types of ETFs following adoption by the Federal Reserve, according to Bill Ahmuty, head of the securities group at SPDR fixed income at State Street. Global Advisors.
âA great catalyst from 2020 volatility and Covid and this use of these funds in the Fed’s SMCCF program has really helped as endorsements for Fixed Income ETFs, and we continue to see a slight increase in use. institutional, be it insurance companies, asset managers, âAhmuty said in a telephone interview, referring to the corporate credit facility in the secondary market of the central bank, which has been deployed to help support credit markets.
The Federal Reserve became at one point last year one of the main holders in some of the world’s largest credit ETFs after entering the market amid the coronavirus pandemic.
This has helped push institutional players to view fixed income ETFs as âa tool they can use,â Ahmuty said.
State Street’s move makes these three funds cheaper than similar products from competitors, including those from Vanguard, which charges 0.05% for its short (VCSH ticker), intermediary (VCIT) corporate bond ETFs. and long term (VCLT).
For comparison, VCSH has seen inflows of around $ 7 billion this year, according to data compiled by Bloomberg, while the State Street short-term product grossed around $ 775 million in the same period. . Investors have added nearly $ 6.4 billion to Vanguard’s VCIT, while SPIB has seen a cash drain so far in 2021.
This shows how much one product can be preferable to another in the eyes of the big players in the market. Ahmuty says State Street ETFs are now competitively priced and the company remains committed to cutting costs where possible.
As for the timing of the move, Ahmuty says that while the stock markets are up broadly this year, many fixed income ETFs are lagging behind. âAs we move towards the end of the year, we see the opportunity to reap tax losses with fixed income ETFs,â he said in the interview. “A lot of people are still thinking of harvesting tax losses when it comes to equity funds, but here we see an opportunity in fixed income funds.”