This is a response to Jim Wiandt's piece on SSgA.
SSgA has made a made a real run at developing a smart ETF lineup. After a sleepy couple of years, they've poured it on, on the development front. And while I have a few quibbles with a couple of their funds, they've also got some real winners. Moreover, the pace of new development is impressive.
But the challenge for SSgA is big. The way I see it, they occupy an unusual space in the ETF industry. Think about the top five ETF firms by assets. What pops into your head:
Number 1: BGI ... the big behemoth ... the biggest ETF company and the one with first-mover advantage in most markets
Number 2: SSgA ... markets the SPDR, the first and the largest ETF
Number 3: Vanguard ... the low-cost provider
Number 4: PowerShares ... the big player in alpha-seeking ETFs
Number 5: ProShares ... the leader in leveraged ETFs
For everyone except SSgA, that defining characteristic is also a growth strategy.
That doesn't mean that SSgA doesn't have a growth strategy. To the contrary, they've been developing some of the most interesting ETFs recently, and have put together a product lineup to rival BGI and the rest. And with the huge bulk of State Street behind them, they will be able to push that lineup out to customers. But the bulk of SSgA's assets are still in the SPDRs, and the challenge is how to fast-forward the growth in the remaining funds against the forces of first-mover advantage.
The SPDR S&P China (GXC) fund is the prime example. That fund is just better from my pure-indexing perspective than the competing China ETFs. The $6.4 billion iShares FTSE Xinhua 25 (FXI) only holds 25 companies and has 25% of its assets in just three firms. Meanwhile, the $580 million PowerShares Dragon Halter USX China (PGJ) tracks an unusual index that is severely underweight financials.
GXC, in contrast, is a nice, diversified and balanced index that more fully represents what's going on in the China region. And yet, GXC only has $88 million in assets. Why? Because it's the third mover ... it's battling the liquidity and name recognition of FXI ... and it has to tell a somewhat complicated story. Convincing investors want to buy "China" is easy; convincing them to buy the right China is harder.
So I'm rooting for SSgA, and definitely want to see them succeed with these new funds. But except where they have first-mover advantage, they face real challenges of explaining why one approach is better than another. That's exactly the kind of debate we should be having in this industry, and the one I try to foster in my reporting. But as always, it's a tough sell.
Written by Matthew Hougan