ETFs have been very good for State Street Corp.
As of January 31, 2017, State Street was managing more than $2 trillion in global ETF assets, and servicing 55% of the global industry’s ETFs and exchange traded products (ETPs) assets under management.
State Street was also named the recipient of the best custody service provider award at this year’s Fund Action ETF Innovation Awards. Past winners of these awards were chosen for their novel ideas, innovative fund products, and high service levels that helped both investors and clients.
In reaching the $2 trillion mark, Frank Koudelka, senior vice president at State Street, said more clients are continuing to bring their business to State Street “because of our commitment to the exchange-traded product structure, our ongoing investment in our proprietary, core platform, and our scale.”
Koudelka said the bank’s big growth area continues to be broad beta ETFs that “still encompass the lion’s share of the market.”
“We have seen acceleration in the launches of smart and strategic beta and actively-managed ETFs,” he said. “The smart and strategic beta ETFs have been primarily across the equity asset class and actively-managed across fixed income.”
Another factor spurring ETF growth has been new trading strategies involving robo-advisory services and ETF strategists utilizing ETFs. He also has seen that more mutual fund asset managers are increasing their use of ETFs as an underlying holding in overall portfolios.
Looking forward, Koudelka said “the biggest gains in ETF trading will see the US market continuing to lead this market with a maturing retail and institutional marketplace. Most other global domiciles are dominated by retail or institutional. Having both of these markets adopting the ETF wrapper allows for increased liquidity via trading, narrowing spreads, and making the products more attractive for retail and advisor adoption.”
He also said that increased retail and advisor adoption will occur “due to migration of advisors to fee-based business. This should drive growth to robo-advisors and wrap/model portfolios. Additionally, fee pressure on active mutual fund managers will increase adoption of these strategies utilizing the ETF-wrapper. This will enable asset managers to maintain most of its fee, while reducing expenses like embedded commissions and shareholder servicing.”
However, he cautioned that some of this growth will be contingent on the regulatory environment regarding transparency requirements for active portfolios.