I was browsing through http://www.sec.gov/ the other night and stumbled on a very important filing.
You can read it here. It's only 187 words. But those 187 words say a lot about what's happening in the ETF industry and why it's good for investors.
The filing announces State Street Global Advisors' (SSgA's) pricing plan for the new SPDR Lehman Municipal Bond ETF, due to launch this week. The critical part reads as follows:
This letter serves to inform the Trust that effective SEPTEMBER 10, 2007, SSgA Funds Management, Inc. ("SSgA FM"), has contractually agreed to waive a portion of its management fee for the SPDR(NYSE:R) LEHMAN MUNICIPAL BOND ETF (the "Fund") and reimburse certain expenses to the extent necessary to limit the Fund's total annual operating expenses to 0.20%.
The two key numbers are 0.20% and September 10, 2007:
- 0.20% is 5 basis points (0.05%) less than Barclays Global Investors [BGI] is charging for its muni bond ETF (NYSEARCA:MUB); and
- September 10 is the day BGI launched MUB, and only a few days after the company announced its pricing policy for the fund (0.25%).
Given the timing, it's clear that SSgA waited for BGI's fund to launch and then pounced, pricing its ETF 5 basis points lower. There was no balancing of the costs to run the fund, and no waiting for assets to grow before slashing fees. It was a land grab, pure and simple; we're cheaper than you are. Welcome to the limbo era of ETF pricing.
(Note that SSgA's filing makes no mention of the pre-waiver expense ratio for the fund; it simply says that it will "reimburse certain expenses" to keep the fee at 0.20%).
I am belaboring the obvious here, but I think it's important. There was a time when first-to-market gathered all the assets in the ETF space. But with all the new-found competition, I think that era is over. Now, assets will flow to the funds offering the best returns, the best liquidity, and the lowest expenses. And that can only be good for investors.