The so-called exchange traded fund fee war has been coming to a head over the past year, quickly escalating as the investment product garners a broader following.
“The beliefs about what determines competition were formed at a time when it was more of an institutional trading product,” Luke Montgomery, analyst with Bernstein Research, said in a Financial Times report.
When the ETF product first came to market, providers were jockeying for the first mover advantage, which ultimately led to a larger and more liquid following.
Now, with more individual retail investors and buy-and-hold institutional investors taking a greater interest in ETFs, fees have become a sticking point. [The Phony ETF Fee War?]
Jim Ross, global head of ETFs at State street Global Advisors, though, also points out that investors are factoring in fees to the total cost of ownership. [Morningstar’s Scott Burns Weighs In on ETF Fee Feud]
Institutional investors are also mindful of “how liquid a product is, spreads, the level of internal charges, tracking error to their benchmark and total return,” Deborah Fuhr, managing partner at consultancy ETFGI, said in the article.
Earlier this month, Vanguard put the fee war on a new level after deciding to swap out MSCI indices as benchmarks for its largest ETFs for cheaper alternatives from FTSE and the University of Chicago’s Center for Research in Security Prices, or CRSP. [What Vanguard’s Index Swap Means for ETF Investors]
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.