Investors are at the winning of a an exchange traded fund (ETF) price tug-of-war, where providers are constantly keeping up with one another by slashing their expense ratios. At some point, though, it’s got to hit bottom.
Both mutual funds and ETFs are selling on the cheap these days, as providers are trying to outdo one another by slashing their fees. Who can go the lowest? Jonathon Burton for The Wall Street Journal reports that the ETF market actually does hold the court for lower fees and the best intense cost competition.
Vanguard has always been the provider with the lowest ETF fees on average, something that would help them gain market share. Not only did it work, but it’s sparked a war in the industry. The modern-day fee battles started when Charles Schwab entered the ETF marketplace, offering free in-house trades for its proprietary ETFs, and when iShares and Fidelity teamed up to offer 25 iShares ETFs commission-free. [ETF Assets Hit the $1 Trillion Mark.]
On the whole, asset returns are growing faster than costs, so the forecast is for even more downward pressure on prices. When fees are cut, it’s a way for providers to gain a competitive edge and attract new customers. [In the ETF Price War, The Winner Is…]
If you need any proof that low fees are attractive to investors, then just look at what’s been going on between iShares COMEX Gold (NYSEArca: IAU) and SPDR Gold Shares (NYSEArca: GLD). Since cutting its fees six months ago, IAU’s gold volume has surged 37%, while GLD’s has declined 3.6%, says The Wall Street Journal.
There are some good, competitive battles going on. Who wins? You.
Tisha Guerrero 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.