The largest ETF providers have been slashing fees on their products to protect market share and stay competitive on cost.
This week, BlackRock Chief Executive Larry Fink said the firm plans to cut expense ratios charged by some of its core-strategy ETFs. [iShares to Cut Some ETF Fees in Fourth Quarter]
In an earnings call earlier this year, Fink acknowledged that iShares was losing assets in large, liquid funds to lower-priced ETFs managed by Vanguard.
“There was hope among sponsors that client service and other intangibles would create loyalty among advisors and help drive flows, but if you’re going after the core business that makes up the most amount of assets, you have to at least be competitive on price,” said Alec Papazian, senior analyst at Cerulli Associates, in an Ignites story Wednesday. “BlackRock is trying to be proactive and at least slow the market share decline.” [ETF Fees: The Lower the Better]
“While many products may appear similar on the surface-with similar industry, holdings, and market cap focuses-the expense ratio can often be the main, and usually key, difference between two products,” says Zacks ETF Research.
BlackRock, State Street and Vanguard are the three largest ETF providers and together control about 80% of the assets in the business. State Street and Vanguard have announced fee reductions on some ETFs in 2012.
“Price can be an important differentiator, especially for attracting new money and some sponsors are lowering expense ratios to be competitive,” Ogden Hammond, a McKinsey consultant, said in a Financial Times report. “It’s natural for a maturing industry to become more competitive and for margins in some segments to be squeezed.” [ETF Price Wars: Round 2]
In related news, Global X Super Dividend ETF (NYSEArca: SDIV) lowered its expense ratio to 0.58% from 1.14% this week. [Global Dividend ETF Cuts Fee]
“As an increasing number of investors use ETFs for longer periods of time, they are doing more due diligence on the total cost of ownership, on how this product fits into my asset allocation, on benchmark analysis and how the product is tracking the benchmark,” said Deborah Fuhr, partner and co-founder of ETFGI, in the Ignites report. “Users are now comparing [ETFs] not just against each other, but against other products.”
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