Last year, US ETFs attracted close to USD200bn, equivalent to 30 per cent growth year-on-year. But as more traditional asset managers look to use the ETF wrapper to provide exposure to investors that they might perhaps not have reached through their mutual funds, total AuM could rise significantly going forward.
State Street Global Services is well positioned to capitalise on this growth. It currently supports around 400 ETFs on its service platform and as senior vice president and ETF product specialist Francis Koudelka (pictured) confirms, 2013 continued to be a strong year for the firm.
“We were able to gain Wisdom Tree as a new client. They are the fifth largest ETF sponsor in the US and decided to switch from one of our competitors,” says Koudelka. The conversion will take place during early 2014.
Wisdom Tree joins a roster of prestigious names on the platform including the likes of PIMCO, Charles Schwab, Russell Investments and SPDR. What is particularly exciting for State Street is the growth in actively managed ETFs coming to market. With PIMCO on board and Wisdom Tree converting soon, they have the two largest managers of actively managed ETFs in the US.
“Wisdom Tree will be converting all of their ETFs, both passive and active, to the State Street platform. They are the second largest provider of actively managed ETFs so between Wisdom Tree and PIMCO we’re going to have close to 80% of the actively managed ETF market from an asset standpoint in the US.”
From a servicing standpoint, Koudelka thinks there are four areas that play an important role in sponsors joining the platform. One is the proprietary technology end-to-end servicing of ETFs. State Street does everything from order processing to transfer agency work, custody accounting, basket creation and dissemination. Second is thought leadership.
“We are always looking to put information into our clients’ hands. We generate a monthly newsletter that talks about global ETF trends as well as a quarterly markets perspectives report that outlines types of products being launched, changes in the regulatory environment, changes within the distribution channel etc. We meet regularly with the authorised participants, exchanges and the regulators. For us, thought leadership and market intelligence is an important differentiator,” comments Koudelka.
Third is innovative solutions. State Street recently launched a client-facing ETF dashboard to allow clients more transparency into its servicing platform.
“We want to show clients the process taking place within State Street. We offer these client-facing tools precisely to allow clients to get a good understanding of where their ETF is in the service lifecycle. They can also get full transparency through reporting using such tools.
“The fourth area is connectivity. We have an electronic order taking application that our clients can use to connect to authorised participants and market makers. Portfolio managers can see on a real-time basis inflows coming in to ETFs. This gives sponsors direct connectivity to the market makers. Having that seamless transaction process between sponsors and APs also provides enhanced transparency,” says Koudelka.
On winning the etfexpress award, Koudelka comments: “We think it’s reflective of the position we’ve taken in the ETF market in providing leadership to our clients and making sure we are a partner, not just a service provider. We take that very seriously.”