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ETF News And Commentary

One of the biggest trends in the ETF world in 2012 has been product competition. This in-fighting among the various issuers has been great news for investors as it has forced many to reduce expense ratios in order to compete successfully for new inflows.

While this movement first began among relatively small issuers, it has seemingly hit the bigger fund companies as well lately, with market leader iShares reducing fees on several of its popular ETFs. Not to be outdone, it appears as though PowerShares is getting in on the action as well, reducing costs for six of its ETFs too.

In a recent press release, the company revealed that it would be reducing fees on half a dozen of its ETFs, greatly cutting down on the costs for investors to hold some of the company’s lineup of RAFI-following products, as well as two of its ‘high quality’ funds (read Escape the Cliff with These Dividend ETFs).

, , , and will all see their expense ratios drop below the 0.50% mark, while and will see, respectively, reductions to 0.45% and 0.29%. This should make each of the six much more competitive from a fee perspective, and while it will probably cause a hit to the bottom-line for PowerShares in the near term, it could result in an increase in assets overall in the long term.

Investors should also note that pretty much all of the funds were probably profitable for PowerShares as they all had a decent level of assets. PXF and PXH both have assets over $100 million while PAF and PDN have respectable figures in the $60 million range.

IDHQ and SPHQ are more interesting cases though, as the international ETF has total assets of less than $20 million while SPHQ has about $170 million in total AUM but saw the most drastic reduction in fees (read Five Cheaper ETFs You Probably Overlooked).

This big drop in fees for SPHQ and the cut for IDHQ showcase how cutthroat the broad American and developed market ETF spaces have become and that relatively ‘expensive’ products will no longer cut it in either of these market segments.

“We continuously analyze ways to improve our overall ETF product lineup for investors,” said Ben Fulton, Invesco PowerShares managing director of global ETFs in a press release. “We believe the lower fees announced today better align the six funds with our existing offerings, and help position the PowerShares family of ETFs for continued growth.”

Below, we have listed the six ETFs impacted by this shift by PowerShares, as well as their former and current expense ratios. Clearly, the move by PowerShares looks to shake up the industry and once again establish the company as competitive on the cost front, while simultaneously benefiting investors who can now access this half dozen for a greatly reduced rate (read Who Says iShares ETFs Aren’t Cheap?).

 

Fund

Old Expense Ratio

New Expense Ratio

PXF- FTSE RAFI Developed Markets ex- US Portfolio

0.75%

0.45%

PXH- FTSE RAFI Emerging Markets Portfolio

0.85%

0.49%

PAF- FTSE RAFI Asia Pacific ex-Japan Portfolio

0.80%

0.49%

PDN- FTSE RAFI Developed Markets exUS Small-Mid Portfolio

0.75%

0.49%

IDHQ- S&P International Developed High Quality Portfolio

0.75%

0.45%

SPHQ- S&P 500 High Quality Portfolio

0.50%

0.29%

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