State Street Global Advisors (SSGA) has changed the underlying indices for three of its core US equity ETFs – those providing exposure to the large-cap, small-cap, and total-cap segments of the market – by dropping incumbent index provider FTSE Russell in favour of SSGA in-house indices, calculated by NYSE.
The SPDR Portfolio Large Cap ETF (SPLG US) has switched from tracking the Russell 1000 Index to the SSGA Large Cap Index, the SPDR Portfolio Small Cap ETF (SPSM US) has switched from tracking the Russell 2000 Index to the SSGA Small Cap Index, and the SPDR Portfolio Total Stock Market ETF (SPTM US) has switched from tracking the Russell 3000 Index to the SSGA Total Stock Market Index.
The SSGA Large Cap Index seeks to offer exposure to the US large-cap market segment by representing approximately the top 90% of the US equity market. As of 14 November 2017, there were 978 constituents in the index, ranging in market cap from approximately $1.1 billion to Apple’s $878bn.
The SSGA Small Cap Index seeks to offer exposure to the US small-cap market segment and will normally include approximately 2000 of the smallest publicly-traded companies. It currently has 1,980 constituents, ranging in market cap from approximately $6.7 million to $7.0bn.
The SSGA Total Stock Market Index seeks to offer exposure to the US equity market encompassing stocks across all market capitalizations, and currently represents approximately 98% of the investable US equity market.
Constituents for all indices are weighted by free-float market capitalization and the indices are rebalanced semi-annually in April and October.
The funds are part of SSGA’s newly unveiled suite of core portfolio funds providing access to various asset classes including fixed income and US, emerging market and international equity. Comprising 15 existing funds with reduced expense ratios, the SPDR Portfolio ETFs shook up the ETF industry with their ultra-low fees – SPTM and SPLG cost just 0.03% each, while SPSM has fees of 0.05%. (See: “SSGA enters fee war with ultra-low-cost SPDR Portfolio ETFs”)
The switch from established third-party index provider to in-house indices is an interesting one when viewed in the context of the current trend in fee reduction in the ETF industry. As ETF fees have come down, a greater amount of providers’ profit margins has been eaten up by index licencing fees. Using proprietary indices is much cheaper for providers than paying for a well-known brand, such as FTSE Rusell, S&P or MSCI, to supply the index.
There has also been talk in the industry of some of the larger providers, including BlackRock and SSGA, collaborating to set up a new index co-operative. Whether these competitors can agree to share ideas and information, or if it is merely a ploy to put pressure on the incumbent index providers remains to be seen. What is true, is that of the major providers, SSGA is potentially in the strongest position to launch an index provider due to the custody banking arm of its parent, State Street.