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State Street FTSE All-Share ETF: May 2022 update

In this update, Passive Investment Analyst Alex Watkins shares our analysis on the manager, process, culture, ESG Integration, cost and performance of the State Street FTSE All-Share Exchange Traded Fund (ETF).

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • State Street has been running ETFs since 1993
  • This ETF provides access to hundreds of UK small, medium-sized and large companies
  • The fund’s low charges should help it track the FTSE All-Share index closely

How it fits in a portfolio

An ETF is a basket of investments that often includes company shares or bonds. They tend to track the performance of an index such as the FTSE All-Share and trade on stock exchanges, like shares. This means their price fluctuates throughout the day.

Find out more about ETFs

The FTSE All-Share Index is a combination of several FTSE indices, including the FTSE 100, FTSE 250 and FTSE Small Cap. It covers 98% of the UK market and offers exposure to hundreds of companies. The fund is heavily weighted in larger businesses meaning performance may be similar to the FTSE 100 – the UK’s 100 largest companies – especially over shorter periods.

A tracker fund is one of the simplest ways to invest and can be a low-cost starting point for an investment portfolio aiming to deliver long-term growth. ETFs that mainly focus on the UK’s larger companies could be used to diversify a long-term global investment portfolio, or one focused on smaller companies or bonds.

Manager

James Fielding is the primary portfolio manager for this ETF. He joined State Street over 10 years ago, after working for the index team at the Bank of Ireland. Each ETF at State Street has a primary and secondary manager, though in practice a broader team helps to manage each fund.

Fielding is supported by the global investment equity team of over 70 portfolio managers and researchers helping create and run the investments. Having a global approach feeds into their investment challenge but also aids in sourcing new ideas.

State Street also has dedicated teams that work with brokers and banks to analyse the trades that they place for clients. They ensure that clients are receiving the best trading outcome, like keeping costs as low as possible. Lower costs could help the funds track their benchmarks as closely as possible.

Process

This ETF aims to track the performance of over 600 UK companies, as measured by the FTSE All Share Index. It doesn’t buy every company in the index though and invests in 579 companies compared with 603 in the FTSE All-Share index. This is known as partial replication, which can help the ETF track the index without the cost of buying all the holdings.

The ETF excludes some of the smallest companies in the index because they can be more difficult or costly to trade. They also don’t tend to have as much impact on the FTSE All Share’s performance compared with the largest companies that make up a larger proportion of the index. Excluding them therefore means the fund can achieve a more cost-effective way of tracking the index.

The fund does invest in some smaller companies though and, while they have greater potential for growth, they can experience more extreme price movements, which increases risk.

State Street can use derivatives in their ETFs to manage new money going into the fund, which adds risk if used. Derivatives can provide a cost-efficient way of gaining exposure to the underlying index – when infrequent or smaller amounts of money flow into the fund, it can be costly to invest in lots of different companies. Instead, the managers can use derivatives to gain broad market exposure at low cost and place a bigger trade in the underlying companies later.

The ETF also has tracking error targets, which measure how closely it's tracking its benchmark. These are monitored by the portfolio managers daily to ensure the fund is closely following the index.

State Street are more conservative in their investment approach for this fund and do not lend any securities, however they do in other products. This involves lending investments to third parties in exchange for a fee.

Culture

State Street is mainly a passive house and has managed ETF products for over 25 years. It created the first US ETF in 1993 and has continued to grow this business ever since. It is currently the third largest asset manager in the world and runs $4.02trn of assets globally as at 31 March 2022.

Employees at State Street are encouraged to hold shares in the company so that they are engaged with helping the company perform well and grow. This should help align the company’s interests with its long-term investors.

ESG Integration

State Street signed up to the Principles for Responsible Investment in 2012. The company has a 20-strong Asset Stewardship team tasked with voting at company meetings and engaging with them on a variety of ESG (Environmental, Social and Governance) and non-ESG related topics.

State Street first offered ESG ETFs in Europe in 2019 and has continued to develop its product range since then. Given State Street offers mostly passive products, there’s often less flexibility to integrate ESG metrics. Instead, State Street focuses on long-term engagement to drive positive change. The company produces a comprehensive annual ESG report, which describes its voting and engagement processes and activity in detail.

The State Street FTSE All-Share ETF is a passive fund designed to track an index, so it doesn’t integrate ESG analysis or exclude companies deemed to be sin stocks, like those involved in tobacco, alcohol or gambling.

Cost

The fund has an ongoing annual fund charge of 0.20% This is one of the lowest cost ETFs for tracking the FTSE All-Share on our platform. There are no charges from HL to hold ETFs within the HL Fund and Share Account. The annual charge to hold ETFs in the HL ISA or SIPP is 0.45% (capped at £45 in the ISA and £200 in the SIPP). Ensuring a passive fund has a low charge is an important part of tracking the underlying index closely.

As ETFs trade like shares, buys and sells are subject to the HL share dealing charges within any Hargreaves Lansdown account.

Performance

The State Street FTSE All-Share ETF has tracked the FTSE All-Share Index well since launch in February 2012. Over this time, it’s grown 95.40%* versus 98.26% for the benchmark. As expected from a tracker fund, it’s fallen behind the benchmark over the long term because of the costs involved. However, the tools used by the team have helped to keep performance as close to the index as possible.

The FTSE All-Share index currently has large exposures to sectors such as financial services, consumer staples and industrials. Therefore, these sectors could currently have the biggest impact on the market’s performance, though the makeup of any index can change over time.

Over the last year, the FTSE All-Share has returned 8.72% to the end of April 2022. UK oil & gas companies in particular performed well over the year. This is partly down to the ongoing effects of the Ukraine crisis which has led to a surge in global oil & gas prices.

Given State Street’s size, experience and expertise running ETFs, the fund could continue to track the FTSE All-Share index well in future, though there are no guarantees on how it will perform. A glance at the five-year table below shows that in some years the fund has tracked its benchmark closer than others. Remember, past performance isn’t a guide to future returns.

Annual percentage growth

Apr 17 – Apr 18 Apr 18 – Apr 19 Apr 19 – Apr 20 Apr 20 – Apr 21 Apr 21 – Apr 22
SPDR FTSE UK All Share ETF UCITS Acc 7.88% 2.38% -16.91% 25.59% 8.62%
FTSE All-Share TR 8.16% 2.62% -16.68% 25.95% 8.72%

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2022.

Find out more about the State Street FTSE All-Share ETF including charges

View State Street FTSE All-Share ETF Key investor information

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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