One of the leading asset management companies, BlackRock Inc. (BLK - Analyst Report) recently entered into the battle of fee cuts after slashing expense fees for some of its iShares Core ETFs. It is speculated that the company took the step to provide tough competition to other potential players in the domain such as Vanguard, Schwab and Fidelity who were among the first to cut fees for their funds. This move is likely to attract more money into the ETF business, which is already expanding at an impressive pace. (Read: How Retirement Saving Rules are Making ETFs More Attractive)
BlackRock Slashes Fees
Expense fees for 15 BlackRock’s iShares Core ETFs were reduced within the range of 2-5 bps in order to make it more competitive compared to its peers. BlackRock management said that it has opted for the cuts on the back of a new set of rules under the Department of Labor’s “fiduciary standard,” which asked advisors to give precedence to their client’s interest over their owns. Meanwhile, the fees cuts made these ETFs one of the cheapest options within their domain.
For an instance, the company reduced fees for its S&P 500 tracking ETF, iShares Core S&P 500 (IVV - ETF report) from 0.07% to 0.04%. The fee cut made IVV less expensive than other popular ETFs in its domain. The other two popular ETFs that also seek to replicate the S&P 500’s performance – SPDR S&P 500 ETF (SPY - ETF report) and Vanguard 500 ETF (VOO - ETF report) – currently charge expense fees of 0.09% and 0.05%, respectively, lower than that of IVV.
Fee Cut to Capture Market Share?
Though management cited the Labor Department’s new set of rules as the main reason behind the reduction in fees, some analysts believe that the company slashed fees to occupy higher market share than its potential competitors. This seems to be true in the current scenario when investors appear to be more interested in allocating their assets to low expense funds compared to those with higher expenses (read: Fidelity Slashes Fees for 11 Sector ETFs).
The global director of Morningstar’s ETF Research, Ben Johnson said: “These fee cuts may actually move the needle more for fund sponsors, who stand to win market share, than they might for investors, who may or may not be able to save a few bucks on fees.” He also added: “Lower fees are unequivocally good for investors… That said, the incremental savings are often de minimis at this point.”
Here are the 15 ETFs that witnessed fees cuts:
iShares Core S&P 500 ETF – from 0.07% to 0.04%
iShares Core S&P Mid-Cap ETF (IJH - ETF report) – from 0.12% to 0.07%
iShares Core S&P Small-Cap ETF (IJR - ETF report) – from 0.12% to 0.07%
iShares Core High Dividend ETF HDV – from 0.12% to 0.08%
iShares Core Dividend Growth ETF (DGRO - ETF report) – from 0.12% to 0.08%
iShares Core MSCI Total International Stock ETF IXUS – from 0.14% to 0.11%
iShares Core MSCI EAFE ETF (IEFA - ETF report) – from 0.12% to 0.08%
iShares Core MSCI Europe ETF IEUR – from 0.12% to 0.10%
iShares Core MSCI Pacific ETF (IPAC - ETF report) – from 0.12% to 0.10%
iShares Core MSCI Emerging Markets ETF IEMG – from 0.16% to 0.14%
iShares Core Total USD Bond Market ETF IUSB – from 0.12% to 0.08%
iShares Core U.S. Aggregate Bond ETF (AGG - ETF report) – from 0.08% to 0.05%
iShares Core 1-5 Year USD Bond ETF (ISTB - ETF report) – from 0.12% to 0.08%
iShares Core Long-Term US Bond ETF ILTB – from 0.12% to 0.08%
iShares Core International Aggregate Bond ETF (IAGG - ETF report) – from 0.15% to 0.11%
5 ETFs to Buy
We have highlighted five ETFs from the above mentioned list that carry a Zacks ETF Rank #2 (Buy) with a Medium risk outlook, indicating impressive prospects in the near term. Significant reduction in expenses may also lead these ETFs to attract a notable portion of investors’ assets, which might help them to improve further.
iShares Core MSCI Emerging Markets
IEMG follows the performance of the MSCI Emerging Markets Investable Market Index, which is designed to measure equity market performance in the global emerging markets. This fund has gained 16.4% over the year-to-date frame.
iShares Core S&P Mid-Cap ETF
IJH seeks to track the performance of domestic mid-cap stocks as represented by the Standard & Poors MidCap 400 Index. This fund has returned 9.8% over the year-to-date frame.
iShares Core High Dividend
HDV seeks investment results that correspond generally to the price and yield performance of the Morningstar Dividend Yield Focus Index. This fund has gained 9.4% over the year-to-date frame.
iShares Core Dividend Growth
DGRO seeks to track the performance of the U.S. equities with a history of consistently growing dividends by tracking Morningstar US Dividend Growth Index. This fund has gained 6.9% over the year-to-date frame.
iShares Core MSCI Pacific
IPAC seeks to replicate the performance of the MSCI Pacific Investable Market Index, which consists of companies from the Pacific region developed market. This fund has gained 5.8% over the year-to-date frame.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>