Schwab Responds to iShares Fee Cuts

On Tuesday, BlackRock’s iShares unit, the world’s largest issuer of exchange traded funds, announced it pare the annual fees on seven members of its core lineup of ETFs. The iShares core suite of ETFs debuted three years ago, aimed at cost-conscious buy-and-hold investors.

The new, lower fees further intensifies the low-cost competition between iShares and Vanguard and Charles Schwab, the latter two of which are seen as low-fee leaders in the ETF space. For its part, Schwab is not taking the iShares fee reductions lying down.

After BlackRock said it will lower the annual fee on the iShares Core S&P Total US Stock Market ETF (NYSEArca: ITOT) to 0.03% from 0.07%, briefly making ITOT the least expensive U.S. equity ETF on the market, Schwab responded by announcing it will lower the fee on the Schwab U.S. Large-Cap ETF (NYSEArca: SCHX) to 0.03% from 0.04%.

“Schwab struck back later Tuesday, saying it would lower the expense ratio on that fund to 0.03 percent, according to spokesman Greg Gable. The timing of that price cut was not immediately clear,” reports Trevor Hunnicutt for Reuters.

Along with the fee cuts and ITOT’s benchmark changes, iShares also launched a currency-hedged Core International Aggregate Bond ETF. IAGG will try to reflect the performance of international investment-grade bonds while mitigating foreign currency risks. IAGG will be competing against the Vanguard Total International Bond ETF (NYSEArca: BNDX), which has a 0.19% expense ratio and also tracks foreign investment-grade debt while hedging against currency risks.