Last year, North American (Canada and US) ETFs attracted close to USD500 billion, equivalent to 35 per cent growth year-on-year. The marketplace has gone through a number of evolutionary phases, first providing broad beta to institutional investors and advisers. ETFs 2.0 was the movement into strategic beta, with alternative weightings and factor-based investing brought on by expanding computing power. The third still unproven phase is the introduction of actively-managed strategies to the ETF wrapper. These products make up just 1.5 per cent of the overall US ETF market, but a healthy 14 per cent of the Canadian space.
“State Street Global Advisors is well positioned to capitalise on this growth. The firm currently services 61 per cent of the ETF assets across North America, while adding seven new clients in the region,” confirms senior vice president and global ETF product specialist Frank Koudelka (pictured). Several client commitments for 2018 will bring the market share up even further.
The current stable of ETF clients globally reads like a ‘who’s who’ of prestigious investment management firms. According to regulatory filings the State Street platform includes: American Century, BMO, Charles Schwab, Davis Advisors, Deutsche Asset Management, Eaton Vance, Franklin Templeton, Hartford, Ivy, Janus, John Hancock, Legg Mason, Natixis, Nomura, PIMCO, Principal, Russell, SSGA, Transamerica, UBS, USAA, Van Eck and Wisdom Tree.
Koudelka says: “These clients bring a combination of index-based investments, factor/multi-factoring investing styles and fundamental/quant actively-managed expertise to a market clamouring for it in the efficient ETF wrapper. Our job is to bring superior technology solutions, institutional knowledge, thought leadership and a firm commitment to ongoing improvement.”
Koudelka comments that State Street’s end-to-end technology capabilities, deep knowledge of the ETF marketplace and strong operational environment are ‘in our DNA’. Further efforts to digitise the work process are evident based on State Street’s Beacon initiative that includes straight-through processing, robotics and machine learning.
From a servicing standpoint, Koudelka thinks there are four areas that play an important role when ETF managers are looking for a service provider.
One is utilisation of proprietary technology throughout the ETF lifecycle. State Street leverages its own global platform to perform everything from order processing to transfer agency work, custody, fund accounting, basket creation and dissemination.
Second is thought leadership. “We are always looking to put information into our clients’ hands. We meet with clients to talk about global ETF trends, including distribution channel and regulatory changes that impact the business. We meet with authorised participants, exchanges and the regulators. Our market share gives us an important seat at the table and a perspective others just do not have,” notes Koudelka.
Third is innovative solutions. State Street recently launched a basket modelling application to assist active managers in the basket creation and trade date holdings dissemination process. The firm has a daily performance attribution tool, enabling ETF managers to measure performance of the ETF to the benchmark(s).
“The fourth area is our people and their commitment to this business. We are honoured to have a deep bench of employees who understand the ETF ecosystem and are an extension of our clients. They have seen it all and really work with our clients to execute industry best practice.”
On winning the award, Koudelka comments: “We’re very pleased to be recognised with this award. We think it’s reflective of our desire to be a business partner with our clients.”