In a move to enhance competitiveness in the increasingly crowded retail trading sector, State Street, the global asset management behemoth, has declared a substantial reduction in fees on a group of its key Exchange-Traded Funds (ETFs). This move might set the pace for an industry-wide trend toward more cost-effective ETF offerings and was called by State Street's representative "a massive win for smaller investors.”

State Street Lowers Fees on Popular ETFs

The firm announced today (Tuesday) that it is slashing fees on ten of its core funds, affecting almost half of the SPDR Portfolio ETF suite. These funds, which cover a broad spectrum of financial markets, including US and foreign, represent about $77 billion in total assets, as indicated by FactSet data. The most significant fee reduction applies to the SPDR Portfolio S&P 500 ETF (SPLG), which is a fund with approximately $20 billion under management.

This reduction in the total expense ratio (TER) is intended to provide more value to smaller, long-term investors who are the primary target of this ETF portfolio suite. Interestingly, these funds have a lower per-share price than similar offerings in the market, such as the SPDR S&P 500 Trust (SPY), making it easier for investors to build diversified portfolios by purchasing full shares of the funds.

"Low-cost ETFs are attractive to buy and hold investors who want to limit the impact of fees on the long-term performance of their portfolios," Sue Thompson, the Head of SPDR Americas Distribution at State Street Global Advisors, commented.

While the SPY ETF, a popular trading tool among many institutional investors, has an expense ratio of 0.0945% and trades at about $450 per share, the recently reduced expense ratio for SPLG now stands at a mere 0.02% with a per-share price of nearly $50.

Despite this industry trend, Thompson has dismissed the idea of SPDR fund expenses ever reaching zero. She cites the real costs associated with managing these funds but pledges the firm's commitment to continually pass on its product's scalability savings to its customers.

"When you look at where expense ratios were 15 years ago across the board to today, this has been a massive win for investors. It has been a massive win for smaller investors," Thompson added.

Retail Investors Are Paying Less

Fund costs have been steadily downward for several decades across the entire asset management industry. Investors have been the ultimate beneficiaries as the ETF industry expands and draws assets from higher-cost mutual funds. This is evident in the existence of some products with a sticker price of zero for the expense ratio, such as the BNY Mellon Large Cap Core Equity ETF (BKLC).

As reported in a press release disclosed to Finance Magnates in March, 90% of Gen Z investors place a higher emphasis on saving and investing rather than spending. With a substantial combined disposable income of approximately $360 billion, these investors acknowledge the significance of companies actively addressing environmental and social concerns. As a result, they tend to favor diversified investment products, such as ETFs, rather than focusing solely on individual stocks.

“As the ETF marketplace becomes more competitive, investors are keeping an eye on cost as an important component of their total cost of ownership. Our research shows that over the course of a decade, a portfolio invested at the median cost of US-domiciled mutual funds would have given up 8.2% of starting principal to fees,” State Street commented in the press release.

Robinhood was the first company aimed typically at the retail trader to shake the investment industry to its foundations by promoting a commission-free trading model. This, coupled with the coronavirus pandemic, which encouraged many people to try their hand at trading, resulted in many traditional companies having to switch to the same model.