(Bloomberg) -- State Street Global Advisors is cutting fees on three corporate bond exchange-traded funds as it seeks to gain a tiny edge in the race to win over the booming bond business.
The Boston-based issuer lowered the expense ratios to 0.04% from 0.07% for its short (ticker SPSB), intermediate (ticker SPIB) and long-term (ticker SPLB) maturity focused corporate bond funds.
The reduction in fees is happening as institutions increase their use of such products, many of whom have warmed to these types of ETFs following an embrace by the Federal Reserve, according to Bill Ahmuty, head of the SPDR fixed income group at State Street Global Advisors.
“A large catalyst coming out of the volatility of 2020 and Covid and this use of these funds in the Fed’s SMCCF program really helped as endorsements for fixed-income ETFs, and we continue to see an uptick in institutional usage, whether it’s insurance companies, asset managers,” and others, Ahmuty said in a phone interview, referring to the central bank’s Secondary Market Corporate Credit Facility, which was deployed to help support credit markets.
The Federal Reserve at one point last year became one of the top holders in some of the world’s largest credit ETFs after it stepped into the market amid the coronavirus pandemic.
That’s helped push institutional players to see fixed-income ETFs as “a tool they can use,” said Ahmuty.
State Street’s move makes all three of those funds cheaper than similar products from competitors, including those from Vanguard, which charges 0.05% for its short (ticker VCSH), intermediate (VCIT) and long-term (VCLT) corporate bond ETFs.
For comparison, VCSH has seen inflows of around $6.8 billion this year, Bloomberg data show, while State Street’s short-term product has taken in $766 million in the same period. Investors have added around $6.2 billion to Vanguard’s VCIT, while SPIB has seen an infusion of around $130 million so far in 2021.
That underscores how much more preferable one product can be over another in the eyes of large market participants. Ahmuty says State Street’s ETFs are now competitively priced and the company remains committed to reducing costs where possible.
As for the timing of the move, Ahmuty says that while equity markets are largely up this year, many fixed-income ETFs are lagging. “So as we head into year-end, we see the opportunity for tax-loss harvesting with fixed-income ETFs,” he said in the interview. “A lot of folks always think of tax-loss harvesting as it relates to equity funds, but we see an opportunity here in fixed-income funds.”
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