The ETF industry is witnessing phenomenal growth and currently commands assets under management of $4.1 trillion. Thanks to growing competition in the ETF business, there has been a race to the bottom with regard to costs in order to gain market share.
While many issuers have entered the fray, the lowest cost corner of the market is generally dominated by Charles Schwab and Vanguard. However, several other issuers are looking for a bigger pie in the ETF market and to that end have slashed their fees considerably. Earlier this year, Fidelity slashed fees equally across 11 sector ETFs to 8.4 bps from 12 bps, marking a decrease of 3.6 bps. The discounts came as part of a broader fee reduction in Fidelity’s offerings (read: Fidelity Slashes Fees for 11 Sector ETFs).
The world’s largest asset manager, BlackRock Inc. has also announced a series of fees cuts. As per a SEC filing by iShares division at BlackRock, fees are being slashed for nine ETFs including two core ETFs, six multifactor ETFs and a short-term bond ETF. This is the second time BlackRock has announced fee cuts for ETFs. In October, it had cut price for 15 core ETFs including iShares Core S&P 500 ETF (IVV - Free Report) . Prior to this, in November 2015, BlackRock slashed the expense ratio for iShares Core S&P Total Stock Market ETF (ITOT - Free Report) to mere 0.03% (read: Buy These ETFs as BlackRock Cuts Fees).
In its latest bout of fees cuts, BlackRock lowered the fees for some of the ETFs by as much as 20 basis points. Here are the 15 ETFs that witnessed fees cuts:
iShares Edge MSCI Multifactor USA ETF (LRGF - Free Report) - from 0.35% to 0.20%
iShares Edge MSCI Multifactor USA Small-Cap ETF (SMLF - Free Report) - from 0.50% to 0.30%.
iShares Edge MSCI Multifactor Intl ETF (INTF - Free Report) - from 0.45% to 0.30%
iShares Edge MSCI Multifactor Intl Small-Cap ETF (ISCF - Free Report) - from 0.60% to 0.40%
iShares Edge MSCI Multifactor Emerging Markets ETF (EMGF - Free Report) - from 0.65% to 0.45%
iShares Edge MSCI Multifactor Global ETF (ACWF - Free Report) - from 0.50% to 0.35%.
iShares Core Russell U.S. Growth ETF (IUSG - Free Report) - from 0.07% to 0.05%
iShares Core Russell U.S. Value ETF (IUSV - Free Report) - from 0.07% to 0.05%
iShares Ultra Short-Term Bond ETF (ICSH - Free Report) - from 0.18% to 0.08%.
The move by BlackRock brings its multifactor ETFs with new lower expense ratio in close competition with low-cost Goldman Sachs Group Inc. multifactor products. The issuer is looking to attract individual and institutional investors who seek to pay lower expenses for actively managed funds.
The launch of multifactor ETFs has been most popular strategy this year. As per data compiled by Bloomberg, multifactor ETFs have been dominant among other launches. Even Wells Fargo plans to enter the ETF market with a multifactor ETF next year. As per Morningstar Inc., there are a total of 204 multifactor ETFs with approximately $39 billion assets under management.
Competition in the ETF market is cut throat. So the expense ratio war is likely to continue in the near term. Several asset managers are ready to further reduce fees to attract investors’ fund and gain market share.
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