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A Closer Look at ETF Issuers

By  +Follow February 3, 2014 6:00AM
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Once an investor is familiar with what an exchanged-traded fund (ETF) is, why they should consider investing in them, and some of the alternative ETF types at their disposal, it’s time to dig into the people at the source: ETF issuers.

Not All ETFs Are Made the Same

Just how much the variations between different issuers really matters is up for debate. Most ETFs are tacked to a specific index, and picking an ETF that suits your portfolio is usually more a consideration of which index rather than which issuer. In many cases, there’s only one issuer with an ETF tracking a particular index. And when there’s multiple issuers with ETFs tracking the same index, the differences in performance are going to be pretty minimal as the intent is to closely match that index. This is different than mutual funds, where fund performance can vary widely depending on the company and manager involved.

However, that doesn’t mean that there’s no reason to know the player involved in the ETF industry. Take, for instance, the most popular ETF, the SPDR S&P 500 Index ETF($SPY). A quick look at daily share volume shows that a clear majority of investors and traders looking to make a play based on the S&P 500 are using SPY to do so. However, two other major ETF issuer have their own S&P 500 ETFs, the iShares Core S&P 500 ETF ($IVV) and the Vanguard S&P 500 ETF (VOO) . And while extremely similar, each one has its own quirks.

Same Index, Different Results

For starters, getting performance that precisely matches the target index involves its own magic. For instance, on January 30, 2014, the S&P 500 gained 19.99 points, which comes out to a jump of 1.13 percent. On that same day, the SPY gained 1.10 percent, the IVV 1.11 percent, and the VOO 1.12 percent. Granted, hundredths of a percentage point probably won’t matter to many investors, but it’s still worth noting that, between the index and the three ETFs, there were four different returns.

And the differences don’t stop there. While most investors probably won’t care one way or the other if their ETF returns a hundredth of a percentage point less than another on any given day, the difference in expense ratio is harder to ignore. The SPY has an expense ratio of just 0.09 percent, which is 0.02 higher than IVV’s 0.07 percent, which itself is 0.02 percent higher than VOO’s 0.05 percent expense ratio.

And finally, there’s even a different in the dividends offered, with SPY featuring a 1.87 percent yield, IVV a 1.85 percent yield, and VOO a 1.89 percent yield.

So, when shopping for ETFs, issuer may not seem like nearly as big a concern as the index being tracked, but there’s still clear reasons to consider the company’s issuing these assets. Because if you’re planning on putting a significant chunk of your retirement savings into one of these ETFs, those fractions of a percent can really add up over time.

List of ETF Issuers

With so many different companies issuing ETFs, it can get a little dizzying trying to keep track of them all. Once again, often times finding the right ETF for your portfolio most likely has more to do with the index involved than the issuer, but that doesn’t mean that these different companies operate with varying philosophies and results that warrant further research.

Below is a look at the 10 of the most-prominent players in the ETF industry:

State Street Global Advisors

Parent Company: State Street Corporation (STT)

Total US-Listed ETFs: 128

Average Expense Ratio: 0.37 percent

Expense Ratio Range: 0.09-0.9 percent

State Street issues the popular SPDR funds, which are among the most visible on the market. Aside from issuing their select sector ETFs for each of the sectors in the S&P 500, the Boston-based company manages is the second-largest asset manager in the world, managing over $2 trillion in assets.

iShares

Parent Company: Blackrock Financial (BLK)

Total US-Listed ETFs: 298

Average Expense Ratio: 0.4 percent

Expense Ratio Range: 0.07-0.89 percent

Formerly known as WEBS (World Equity Benchmark Shares), iShares ETFs are also among the most-traded in the world and include the popular MSCI Emerging Markets Index ETF (EEM) . The company was initially developed in 1993 as part of a partnership between Morgan Stanley (MS) and Barclays (BCS) , but Barclays sold the division to Blackrock in 2009.

Market Vectors

Parent Company: Van Eck Global

Total US-Listed ETFs: 62

Average Expense Ratio: 0.55 percent

Expense Ratio Range: 0.19-1.67 percent

The Market Vectors brand was launched by Van Ecks Associates Corporation in 2006 and includes the Gold Miners ETF($GDX). Van Ecks, a private firm founded in 1955, proved to be a trailblazer in the field of international investing.

Vanguard

Parent Company: Vanguard Group

Total US-Listed ETFs: 67

Average Expense Ratio: 0.15 percent

Expense Ratio Range: 0.05-0.35 percent

Featuring consistently-low expense ratios, Vanguard is the third-largest ETF issuer with over $335 billion in ETF assets under its control. Vanguard is actually a pioneer in the field of passive fund management, with founder John C. Bogle creating the first index fund available to individual investors.

WisdomTree

Parent Company: WisdomTree Investments ($WETF)

Total US-Listed ETFs: 61

Average Expense Ratio: 0.51 percent

Expense Ratio Range: 0.23-0.95 percent

Since launching its first ETF in 2006, WisdomTree has risen the ranks to become the fifth-largest issuer of ETFs in the United States. WisdomTree’s most popular offering is the Japan Hedged Equity Fund ($DXJ), which tracks Japanese equities while hedging for currency risks.

PowerShares

Parent Company: Invesco (IVZ)

Total US-Listed ETFs: 164

Average Expense Ratio: 0.56 percent

Expense Ratio Range: 0.2-1.01 percent

Invesco’s PowerShares was founded in 2002 and creates ETFs that track quantitative indices. Its most-traded offering is the cryptically-titled PowerShares QQQ ($QQQ) which tracks the Nasdaq-100 Index.

Global X

Parent Company: N/A

Total US-Listed ETFs: 38

Average Expense Ratio: 0.64 percent

Expense Ratio Range: 0.45-0.78 percent

Global X Funds is a stand-alone, privately-owned company issuing ETFs. One of the industry’s smaller players, Global has nonetheless made its mark by jumping into the social media industry with its Social Media Index ETF ($SOCL).

Guggenheim

Parent Company: N/A

Total US-Listed ETFs: 71

Average Expense Ratio: 0.45 percent

Expense Ratio Range: 0.2-0.75 percent

Guggenheim Partners, the investment group most recently noted for its purchase of the Los Angeles Dodgers, purchased Claymore Securities in 2009 and rebranded its ETF offerings under the Guggenheim name. Guggenheim’s Solar ETF ($TAN) was the top-performing non-leveraged ETF of 2013.

Direxion

Parent Company: N/A

Total US-Listed ETFs: 54

Average Expense Ratio: 0.91 percent

Expense Ratio Range: 0.35-1 percent

Direxion’s offerings feature a clear theme: leverage. Specializing in alternative ETFs, many of Direxion’s most-traded offerings feature returns at three times the daily movement of their target index.

ProShares

Parent Company: N/A

Total US-Listed ETFs: 143

Average Expense Ratio: 0.91 percent

Expense Ratio Range: 0-0.95 percent

Billing itself as “The Alternative ETF Company,” ProShares is in the business of creating inverse, leveraged, and combination inverse and leveraged ETFs for a wide variety of indices.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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By  +Follow February 3, 2014 6:00AM
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