State Street to close three ETFs that attracted little investor interest

Shutdowns come weeks after big price cut as the firm's biggest fund suffers outflows

Mar 10, 2015 @ 4:41 pm

By Trevor Hunnicutt

State Street Corp., bowing to what it called “limited market demand,” will close three exchange-traded funds this month.

The announced closure of the ETFs, including one municipal-bond fund in partnership with Nuveen Investments Inc., comes five weeks after the ETF pioneer slashed prices on nearly a third of its funds and while the firm faces outflows in its flagship fund.

State Street, who manages the first-to-market “SPDR” ETFs, will shut its S&P Mortgage Finance ETF (KME), S&P Small Cap Emerging Asia Pacific ETF (GMFS) and SPDR Nuveen S&P VRDO Municipal Bond ETF (VRD), according to a statement Monday. The funds are each at least three years old, but none hold more than $6 million in assets.

State Street, whose money managing arm is also known as SSGA, has $441 billion in U.S. ETF assets, third behind BlackRock Inc.'s iShares and the Vanguard Group Inc. The firm is perhaps best known for its SPDR S&P 500 ETF (SPY), which is commonly recognized as the first ETF traded in the U.S. as well as the most widely traded. That fund has lost $26 billion to investor redemptions this year, according to Morningstar Inc. estimates. State Street, whose index-tracking fund is used widely by tactical traders and institutions along with advisers, has said those flows are cyclical.

Meanwhile, the firm also has tried to expand its lineup to more profitable mutual funds and partnerships on ETFs with Nuveen and DoubleLine Capital's Jeffrey Gundlach to attract assets into other product lines.

In recent years State Street has also stepped up efforts to sell to advisers.

Those efforts haven't led to growth matching the success of Vanguard, which brought in $82 billion, well more than twice the SPDRs' $32 billion haul in the year ending Feb. 28, according to Morningstar. SSGA manages $2.45 trillion in all, as of Dec. 31, including 147 ETFs.

When trading in the three SPDRs halts after Mar. 18, it will bring to nine the number of U.S. listed ETFs that closed this year, after 90 closed in 2014, according to the research firm ETF.com.

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