- SPY is dying
- iShares provided the blueprint for a solution to SPY’s woes
- Low-cost ETFs gathered the bulk of all ETF assets
- Invesco acquired Oppenheimer Funds
1.) SPY is dying, but it can be saved (sort of)Here’s the chart of the top ten ETF Fund Flows for 2018:
Here’s the top 10 fund flows year to
One year, a trend does not make. ~Yoda/Ronald O’Hanley, probably (State Street’s new CEO)
And, this is exactly what SoFi is now doing. State Street might as well beat them to the punch their increased distribution and know how.
An alternative plan to really shake things up is to launch an S&P 500 fund, only don’t use the S&P 500 index. Create your own index of 500 large cap U.S. Equities. Then you don’t have to pay S&P the index licensing fee. I’ll be the first to admit indexing is harder than it gets credit for, but State Street has the resources to make it happen. That will help the argument for undercutting IVV & VOO as they wouldn’t be stuck paying S&P basis points for the index rights.
2.) iShares Provides a Blueprint for SuccessNo ETF pulled in more assets than iShares Core MSCI EAFE ETF (IEFA) in 2018, as investors looked to invest in the “undervalued” international developed markets. On the other hand, iShares MSCI EAFE (EFA) had the second most outflows. What’s going on here? iShares successfully pulled off, with the launch of IEFA as the low-cost replacement to EFA in 2012, what I’m suggesting State Street should do with its cheaper/free ETF. EFA was making iShares a lot of money so cutting the expense ratio was untenable. However, they needed to compete with the (at the time) new low-cost competitors Schwab and Vanguard. So they launched IEFA in 2012 to compete with the low-cost competitors and left EFA untouched. If iShares can pull off this plan with EFA/IEFA, State Street can pull this off with SPY/ cheaper SPY. But just like with IEFA, it could take a long time (seven years in the case of EFA/IEFA) to successfully pull it off.
3.) Low-Cost Reigns SupremeThe most expensive fund in the top ten inflows for 2018 charges 15 basis points or .15%. This is a trend
Invesco buys Oppenhiemer FundsFive years ago it would have been radical to suggest an ETF company would buy a mutual fund company (small or large). And yet, just that almost happened this year when hybrid mutual fund/ETF firm Invesco PowerShares stepped into the M&A arena. Invesco didn’t acquire just any mutual fund company: we’re talking about the behemoth, Oppenheimer Funds (assets under management of $246 Billion). With this acquisition, the combined company of Invesco PowerShares now manages over $1 trillion. 4 The acquisition by PowerShares shows a major shift in the asset management landscape. Since the creation of ETFs, it was either mutual fund companies buying rapidly growing ETF companies or mutual fund companies starting their own ETF business from within. This is the first major deal that goes this direction (predominantly ETF company buying a major mutual fund company). That’s…a big deal. It makes the possibilities for future M&A in the industry a lot different.
The ETF Industry Grows Up2018 brought the ETF industry large scale acquisitions, consolidation, and increased scale relative to competing industries. These are clear signs of one thing: The ETF industry is arguably a mature industry. A decade ago there
- Data from MorningStar. Going back to 1999 ↩
- With so many Buzzfeed employees being laid off, I figured someone needed to step in and provide the internet superhighway with the fuel it runs on: Lists. ↩
- SPY is structured as a UIT, which is different than how IVV and VOO are structured. The difference is fairly marginal, but when you’re all doing the same exact thing marginals differences are the only things that matter. ↩
- https://www.oppenheimerfunds.com/advisors/article/invesco-and-massmutual-announce-strategic-combination-of-invesco-and-oppenheimerfunds ↩