State Street Plans Active ETFs

Includes: AOA, AOK, AOM, BKLN, CPI
by: Michael Johnston

The dawn of the second quarter of 2011 has seemingly brought a fresh round of momentum to the active ETF space, as the log jam at the SEC has been broken - at least initially - and some major names in both the ETF and mutual fund space have inched closer toward rolling out actively-managed ETFs. State Street, the issuer behind the two largest U.S.-listed passive ETFs, became the latest to throw its name into the ring as a potential issuer of active ETFs. In a recent SEC filing the company detailed six active ETFs covering various asset classes and investment strategies:

  • SSgA Real Assets ETF: This fund would seek “to achieve real return consisting of capital appreciation and current income” according to the filing, and would invest primarily in exchange-traded products offering exposure to four asset classes: 1) TIPS, 2) domestic and international real estate, 3) commodities, and 4) equities of companies in the natural resource/commodity industry.
  • SSgA Income Opportunities ETF: This fund would seek “to provide total return by focusing on investments in income and yield-generating assets” and would invest primarily in four asset classes: 1) domestic and international equities, 2) debt securities, 3) hybrid debt/equity securities (e.g., convertible bonds or preferred stock), and 4) real estate securities.
  • SSgA Conservative Allocation ETF: This fund would seemingly be similar to certain products in the Diversified Portfolio ETFdb Category, functioning as a “one stop shop” for investors with a conservative investment strategy.
  • SSgA Moderate Allocation ETF: This ETF would offer slightly higher risk than the conservative counterpart, seeking “to provide current income and capital preservation, with a secondary emphasis on capital appreciation.”
  • SSgA Aggressive Allocation ETF: This ETF would be this third in the suite of asset allocation funds, seeking “to provide capital appreciation, with a secondary emphasis on current income and capital preservation.”
  • SSgA Blackstone / GSO Senior Loan ETF: This ETF would seek to outperform the S&P/LSTA U.S. Leveraged Loan 100 Index, a benchmark that consists of senior loans that are often issued in connection with leveraged buyouts or acquisitions. Senior loans are first lien senior secured floating rate bank loans.

Competing Products

Each of the proposed active ETFs from State Street would compete closely with existing passive ETFs already on the market. There are a number of products designed to deliver real returns or offer exposure to stocks of commodity-intensive equities, including CPI from IndexIQ and nearly 30 products in the Commodity Producers Equities ETFdb Category. There are a number of ETFs that focus on delivering current yield, including dividend-weighted funds from WisdomTree and a handful of others that include only dividend paying companies.

iShares offers a suite of asset allocation funds, including ETFs designed for conservative (NYSEARCA:AOK), moderate (NYSEARCA:AOM), and aggressive (NYSEARCA:AOA) objectives. And PowerShares recently debuted the first U.S.-listed ETF to offer exposure to senior loans. BKLN, which seeks to replicate the index that would serve as the benchmark for the proposed active State Street fund, has already accumulated about $80 million in assets.

Disclosure: No positions at time of writing.

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