The largest exchange traded fund managers are facing off in an apparent race to the bottom on fees. Vanguard, BlackRock, and State Street have the lion’s share of assets within the business, and now the providers are competing for market share based on who can offer the lowest fees.
Additionally, large player Charles Schwab made a big move last year with across-the-board fee cuts at its ETF lineup.
“In just four years Vanguard has doubled its share of the ETF market to 18.2%. Much of that gain has come at the expense of leader iShares, which was bought by BlackRock in 2009. iShares now holds 41.2% of the market, seven percentage points lower than three years ago, according to Morningstar. SPDR, owned by State Street Global Advisors, retains 24.4% of the market,” Erika Fry wrote for CNN Money.
Vanguard and iShares, the ETF suite of BlackRock, are competing to gather the most market share based upon which one can offer the lowest fees. Vanguard currently manages $2.2 trillion, iShares manages $3.7 trillion and State Street has $2.1 trillion in asset under management, reports Fry. [ETF Fee Battle Raises Competition]
Chalres Schwab came to the market with their ETF suite and brought some fees as low as 0.04%, while offering free trades for those with in-house brokerage accounts. In October 2012, BlackRock iShares slashed fees, followed by PowerShares in November of 2012, then ultimately Vanguard cut fees again in December while making a cost-saving index change.
Despite the obvious competition, the providers are playing down the rivalry on who can offer the lowest-cost ETFs.
“We’re not engaging in a fee war,” says Martha King, managing director of Vanguard’s financial adviser services, in the report. “We’re running this company the way we have for decades.” [Investing on a Shoestring with Low-Cost ETFs]
“Overall, this is not a price war. This is all about working with our clients. I think [analysts and the press] have created this myth about a price war,” BlackRock CEO Larry Fink said in October. [The Phony ETF Fee War?]
“We have never done anything as something that we are a fight between BlackRock and Vanguard,” Fink added during BlackRock’s recent fourth-quarter earnings call. “That’s a topical myth by the media. We are just trying to execute our strategy and provide what we think are great outcomes.”
No matter what the motive, the bottom line is that this ultimately benefits the investor. The successive price cuts also put more pressure on the mutual fund industry to keep fees to a minimum.
Tisha Guerrero contributed to this article.