The iShares S&P 500 (NYSEArca: IVV) was the best-selling ETF in October after manager BlackRock (NYSE: BLK) slashed the fund’s fees in response to increased competition from low-cost rivals.
IVV saw inflows of more than $2 billion last month while competitor SPDR S&P 500 (NYSEArca: SPY) posted outflows of $7.2 billion, the largest withdrawal for any U.S.-listed ETF, the Financial Times reports.
Vanguard S&P 500 (NYSEArca: VOO) saw inflows of $227 million in October.
Last month, BlackRock lowered IVV’s expense ratio to 0.07% from 0.09% as the largest ETF provider introduced the new iShares Core Series designed for buy-and-hold investors. [BlackRock Cuts ETF Fees]
SPY is the biggest ETF by assets with over $100 billion and charges a net expense ratio of 0.0945%, according to manager State Street (NYSE: STT). Vanguard’s VOO levies a fee of 0.05%.
“BlackRock has seen a positive reaction to its decision last month to cut fees on some of its US-listed iShares ETFs, while Vanguard’s move to cut costs for investors by switching the index provider on some of its largest ETFs has been met with less enthusiasm,” the Financial Times reports.
Emerging markets showdown
In particular, the newspaper notes the decision to eventually drop the MSCI (NYSE: MSCI) index at Vanguard MSCI Emerging Markets (NYSEArca: VWO) in favor of a FTSE benchmark seems to have had an immediate negative impact on the ETF.
“Inflows into VWO completely stalled last month. It gathered a paltry $1 million in net new inflows in October, a substantial decline compared with the first nine months of the year when it was gathering more than $1.2 billion on average each month,” the FT said. “VWO’s previous success in attracting inflows was one of the key factors behind Vanguard’s success in winning the title of fastest growing US ETF provider in 2010 and 2011 ahead of its larger rival iShares.”
Meanwhile, iShares MSCI Emerging Markets (NYSEArca: EEM) gathered $1.3 billion in October.
EEM has an expense ratio of 0.67% compared with 0.20% for VWO.
The recent buying and selling patterns in the two emerging market ETFs could reflect the fact that many institutional investors are benchmarked to MSCI indices.
BlackRock recently launched the iShares Core MSCI Emerging Markets (NYSEArca: IEMG) which features an expense ratio of 0.18%. [Emerging Market ETF Battle: Vanguard vs. iShares]
Full disclosure: Tom Lydon’s clients own SPY and EEM.
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