Market Overview

Inside BlackRock's ETF Fee Cuts

Inside BlackRock's ETF Fee Cuts

On Wednesday, BlackRock, Inc. (NYSE: BLK), the world's largest asset manager, made waves in the exchange-traded funds industry by announcing lower fees for 15 of its iShares core ETFs. With that news, it can legitimately be said that iShares, the world's largest ETF issuer, is taking the fee fight to its competitors.

Price Wars?

In fact, many of the 15 iShares core ETFs that now have lower expense ratios are also now less expensive than the equivalent Vanguard ETFs. Yes, that is right. iShares now issues a slew of ETFs that are less expensive than the competing Vanguard funds. Perhaps the next fee news from Vanguard will be going to zero. After all, Vanguard is a financial services company in non-profit clothing. (Insert “LOL” and smiling emojis here.) Anyway, that is a story for another day.

Related Link: A Hidden Gem Among Emerging Markets ETFs

The ongoing fee battles in ETF Land also strike at the heart of active management, which is fighting a seemingly losing battle on two fronts: higher fees with slack performances relative to cheaper index funds and ETFs.

“In the 12 months ended August, actively managed large blend mutual funds and ETFs shed $57 billion in assets while passive products in the style gathered $108 billion, according to Morningstar,” said S&P Capital IQ in a note out Wednesday. “Not coincidentally, the SPIVA mid 2016 scorecard revealed that only 19 percent of active large cap core funds outperformed the S&P 500 index in the one-year period ended June 2016. Looking back further, 12 percent and 8 percent of the active funds outperformed in the three- and five-year periods. Adoption of low-cost, passive products has been strong in a variety of equity and fixed income investment styles.”

The Battle May Have Just Begun

With some of the new expense ratios on the iShares core ETFs, it will be hard if not impossible to find lower fees on competing product, at least until a rival fund issuer responds and there are no guarantees that will happen.

For example, the iShares S&P 500 Index (ETF) (NYSE: IVV) is now charging 0.04 percent per year, or $4 on a $10,000 investment and one basis point different per year than the fee on the Vanguard 500 Index Fund (NYSE: VOO).

Likewise, the new fees on the iShares Core Emerging Markets ETF (iShares Inc. (NYSE: IEMG)) and the iShares Core Dividend Growth ETF (iShares Trust (NYSE: DGRO)) are slightly below the expense ratios found on the Vanguard Emerging Markets Stock Index Fd (NYSE: VWO) and the Vanguard Dividend Appreciation ETF (NYSE: VIG).

VIG and VWO are the largest ETFs tracking their respective asset classes.

“VOO and IVV track the same index making comparisons relatively simple. For example, iShares Core MSCI Emerging Markets (IEMG) holds South Korean stocks and not China A shares while Vanguard FTSE Emerging Markets (VWO) tracks a different index and is constructed with the inverse approach. IEMG now costs 14 basis points, 1 basis point less than VWO,” added S&P Capital IQ.

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