Unless you are Rip Van Winkle, you don’t need to be a MarketsMuse to know that the primary value proposition put forth by the ETF industry has always been: “Lower Fees Vs. Mutual Funds!” Yes, the secondary ‘advantage’ is “liquidity,” given that investors can move in and out of exchange-traded-funds throughout the trading day, whereas mutual funds are priced on an end-of day basis.
Well, Issuers of exchange-traded funds are now eating their own lunches, as competing Issuers are now pursuing a “race-to-zero” path when it comes to administration fees—adding a further crimp to the mutual fund industry’s marketing complex—which is being rocked by allegations from PIMCO’s former top honcho Bill Gross who has alleged in a recent lawsuit that PIMCO’s administrative fees are equal to the management fees the firm charges (but, that’s another story!)
Courtesy of today’s column by WSJ’s Daisy Maxey ETF Fees: “The Arms Race to Nothing”, the story at hand is worth two in the bush…here’s an excerpt:
BlackRock Inc. exchange-traded fund can now claim the title of the lowest-cost stock exchange-traded fund—but it probably won’t have that distinction to itself for long.
BlackRock, the largest global provider of ETFs, on Tuesday cut fees on seven of its iShares Core ETFs. That included trimming the annual expenses of the $2.7 billion iShares Core S&P Total U.S. Stock Market ETF to 0.03% of assets from 0.07%, bumping a pair of Charles Schwab Corp. ETFs from the lowest-cost spot.
Within hours, Schwab vowed to match the cut on its $4.9 billion Schwab U.S. Large-Cap ETF, which currently has expenses of 0.04%.
“Our intention has always been to be the price leader in the ETF space, and we’re going to maintain that,” said a spokesman for Schwab, who didn’t give an exact time frame for the company’s planned move.
Low fees have been one of the big attractions of ETFs and providers have competed fiercely to whittle down their charges by additional hundredths of a percentage point. The latest cuts by BlackRock are being viewed as a challenge to Vanguard Group, the No. 2 in ETF assets, as well as a sign of the success of BlackRock’s iShares Core ETF lineup, launched three years ago.
The giants of the ETF business are BlackRock, with $818 billion in U.S. ETF assets under management; Vanguard, at $479 billion; and State Street Global Advisors, the asset-management business of State Street Corp. , at $418 billion, according to Thomson Reuters Lipper. Schwab is a distant No. 7, with $38 billion in U.S. ETF assets, according to Thomson Reuters Lipper.
BlackRock’s iShares Core ETFs, which now number 20, are marketed as simple and low-cost portfolio building blocks.
The lineup has grown to $160 billion in assets as of Sept. 30, according to BlackRock.
For the full story from WSJ, click here
