State Street Takes on Charles Schwab, Launches 15 Ultra Low-cost ETFs

Charles Schwab Corp. (SCHW) may have won accolades earlier this month for being the lowest cost provider of exchange traded funds, but State Street Global Advisors is stealing some of that thunder.

Earlier this week, the fund manager announced it was slashing the fees on all of its 15 ETFs, with costs dropping to as low as 3 basis points. The investment firm said it was in response to customers, who wanted more choice when it comes to low-cost ETF investing.

"Each fund in the SPDR Portfolio suite is priced equal to or below the lowest fee ETF in the category," said Rory Tobin, co-head of the Global SPDR business at SSGA in a press release. “Some of these changes in price are significant – such as offering Emerging Markets exposure at 11 basis points. In addition, these funds have a combined total of over $11B2 in assets and trade actively, so there is no incubation period needed." According to Bloomberg, State Street’s ETFs join one ETF from BlackRock and two from Charles Schwab that offer the lowest costs in similar segments of the stock market.

State Street’s move is a bit of a blow to Charles Schwab, which has been trying to grow its position in the world of passive investing, where it is behind its rivals. Offering cheap expenses has and will continue to be the name of the game in the cutthroat environment of passive investing. After all, investors are looking for investments that aren’t going to cost them a lot of money and will choose the low-cost providers. According to Bloomberg, more than 75% of ETF inflows have come from the funds that have the lowest expense ratios.

State Street’s new SPDR Portfolio ETFs include 15 ultra-low cost ones that provide investors with access to a wide range of equity and fixed income asset classes. The company said it created mid-cap, large-cap and broad market U.S. equity indexes that three of the new ETFs will track instead of the FTSE Russell benchmarks.  The SPDR Portfolio ETFs will be available for purchase on TD Ameritrade’s ETF Market Center commission free.

Earlier this month Charles Schwab announced the Schwab 1000 Index ETF, which provides investors with a low-cost way to get exposure to the 1,000 largest stocks in the U.S. The new ETF, which has an operating expense ratio of 5 basis points, or 0.05% is being made available through the company’s commission-free ETF program in which it offers investors access to more than 200 ETFs that don’t have commissions attached to them. The San Francisco discount broker said at the time that the expense ratio is one-half to one-third cheaper than other ETFs that track the biggest 1,000 U.S. stocks.