In the ETF Price War, Investors Win
August 6th 2012 at 6:00am by Tom Lydon
BlackRock’s iShares, the largest and most prominent name brand in the exchange traded fund space, may have to reduce expense fees as alternative low-cost providers undercut the company’s market share.
In early July, BlackRock Chief Executive Officer Laurence Fink acknowledged that Vanguard‘s lower fees were drawing greater investor interest. [Will BlackRock Cut iShares ETF Fees?]
According to S&P Capital IQ, the average iShares stock fund’s fees account for $46 per $10,000 invested, whereas it only costs investors $17 for Vanguard’s products, reports Ian Salisbury for WSJ.com.
“The incumbent doesn’t usually talk about the upstart. It’s an unwritten rule,” Todd Rosenbluth, an analyst at S&P Capital IQ, said in the article.
“Cutting prices is the only thing you can do,” industry consultant James Pacetti added. “How else can you compete?”
BlackRock’s iShares has enjoyed its first mover’s advantage, with 262 ETF products available and $481.7 billion in assets as of the end of June, according to the ETF Industry Association. Advisors and institutional investors tend to focus on the most heavily traded products in their respective categories because of their tight bid/ask spreads.
Vanguard’s total assets under management has grown 40% to almost $1.7 trillion in the five-years ended June 30, compared to the overall industry asset growth of 10%, reports Jason Kephart for InvestmentNews.
Since Vanguard’s push into the fund space, BlackRock’s share of the market pie has dropped to 40% from as high as 60% in 2006. Vanguard has attracted almost $100 billion in assets since 2010 while iShares only brought in $56.7 billion.
In the latest skirmish of the ETF price war, Vanguard recently filed for a new short-term Treasury inflation protected securities ETF that clocks in at half the cost of its competitors. [Vanguard Extends ETF Price War to TIPS]
For more information on the ETF asset flows, visit our ETF performance reports category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.