State Street has listed an active global smaller companies exchange-traded fund (ETF) in London as the Boston-base US banking and asset management group steps up expansion in Europe.

The State Street World Small Cap Enhanced Active Equity UCITS ETF (SWSC) is one of three dollar-denominated active ETFs launched by its investment management business in Dublin following the listing of six ETF share classes by its Luxembourg active mutual fund range last year.

The two others are State Street’s All World Enhanced Active Equity UCITS ETF (SAWE), which will list in Italy tomorrow, and Global Dividend Spotlight Active Equity UCITS ETF (GDSF) which will also list on Deutsche Borse on 11 February.

Both SWSC and SAWE will use a multi-factor model to select stocks on quality, value, sentiment and catalysts, employing software to extract signals from company communications, including conference call transcripts. 

Based on State Street’s established active dividend funds in the US, GDSF is more like a conventional active fund, using bottom-up research to find companies with sustainably growing dividends trading below intrinsic value.

SWSC will hold 300-600 stocks and seek to beat the MSCI World Small Cap index. It charges 0.45% in annual total expenses and is eligible for an ISA investment.

Currently with $88.7m (£64.9m) of assets, the fund is almost 60% invested in the US with allocations of 13.3% to Japan, 4.8% to Canada and 4.5% to the UK. Sector weightings are led by industrials accounting for 23%, followed by financials at 14.8%, IT at 13.5% and consumer discretionary on 10.8%. Its top holding at 1.2% of assets is Popular, a US bank with operations in Puerto Rico and the Virgin Islands.

Benchmarked against the MSCI All Country World index, SAWE will have 350-550 stocks and charge 0.3% a year. 

GDSF will be more concentrated with 30-40 stocks as it looks to outperform the MSCI World High Dividend Yield index on total annual expenses of 0.45%.

Ann Prendergast, head of EMEA for State Street Investment Management, said: “State Street IM has a proud tradition of innovation and, backed up by our expertise and the efficiencies we derive from our scale as one of the sector’s largest players, we believe that our growing active range caters clearly to this demand.”

Our view

David Batchelor, senior analyst at QuotedData, said: “State Street’s big push into the European Active ETF market continues. The firm’s ‘ETF-as-a-service’ offering – a lower-fat partnership model to rival the all-in offering from the likes of HANetf – has been getting significant coverage recently, but the company is showing here that it is also committed to direct product launches.

“Of most interest for UK investors is the World Small Cap Enhanced Active Equity UCITS (SWSC) product that is already trading on the LSE. As with so many active ETFs, there is an ESG aspect, with the fund screening out securities based on non-compliance with the UN Global Compact Principles relating to environmental protection, human rights, labour standards and anti-corruption, although the TER is not particularly competitive, at 0.45%.”

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