BlackRock’s iShares exchange traded fund division is enticing long-term investors to its “Core” offerings after cutting down fees on a group of stock and bond options.
On Tuesday, iShares lowered the expense ratios on seven funds in its iShares Core ETF suite, launched the iShares Core International Aggregate Bond ETF (NYSEArca: IAGG), removed the iShares Core GNMA Bond ETF (NYSEArca: GNMA) from the iShares Core ETF lineup and planned to change the benchmark index of the Shares Core S&P Total US Stock Market ETF (NYSEArca: ITOT), according to a press release.
iShares lowered the expense ratio on seven Core ETFs, including:
- iShares Core S&P Total US Stock Market ETF (NYSEArca: ITOT) to 0.03% from 0.07%
- iShares Core U.S. Growth ETF (NYSEArca: IUSG) to 0.07% from 0.09%
- iShares Core U.S. Value ETF (NYSEArca: IUSV) to 0.07% from 0.09%
- iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) to 0.16% from 0.18%
- iShares Core MSCI Europe ETF (NYSEArca: IEUR) to 0.12% from 0.14%
- iShares Core MSCI Pacific ETF (NYSEArca: IPAC) to 0.12% from 0.14%
- iShares Core Total USD Bond Market ETF (NYSEArca: IUSB) to 0.12% from 0.14%
The fee cuts may be seen as an active way to cater toward a growing group of investors and advisors seeking cheap investment vehicles. ETF investors have been increasingly turning toward cheaper fund options. For instance, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks an MSCI index and comes with a 0.68% expense ratio, has seen $6.4 billion in outflows year-to-date, whereas IEMG has attracted $3.6 billion in inflows, according to ETF.com.
“We launched iShares Core in October 2012 as a branded suite of ETFs for buy-and-hold investors looking for a simple, low cost way to invest over the long-term in stocks and bonds. With today’s changes we are providing investors with broader and more diversified exposures at competitive price,” Ruth Weiss, head of U.S. iShares product team at BlackRock, said in the press release.
With the new fee cuts, ITOT has unseated Schwab U.S. Broad Market ETF (NYSEArca: SCHB), which has a 0.04% expense ratio, as the cheapest U.S.-listed stock ETF. SCHB tracks an index similar to total-market benchmarks, like the Russell 3000, but the it includes less exposure to the smallest stocks. On the other hand, the Vanguard Total Stock Market ETF (NYSEArca: VTI), which comes with a 0.05% expense ratio and covers almost every listed U.S. stock, may be seen as the main competitor to ITOT.
Additionally, effective December 18, 2015, ITOT will track the new S&P Total Market Index. The S&P Total Market Index includes greater small- and micro-cap exposure and will cover more than double the component holdings of the fund’s current benchmark, the S&P Composite 1500 Index. Consequently, due to its broader market exposure, the new benchmark may be slightly less top heavy and provide greater diversification benefits.
“The new S&P benchmark for ITOT provides greater breadth of coverage relative to the current index with over 2,000 additional small-cap and micro-cap stocks,” Weiss added.
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.
“However, the index IAGG will track has a lower issuer cap than BNDX, which we think will reduce the iShares ETF’s exposure to Japanese sovereign bonds for example,” Todd Rosenbluth, S&P Capital IQ Director of ETF Research, said in a research note. “We expect that the different exposures will impact the ETF’s duration, yield and performance.”
Lastly, iShares kicked out GNMA from its Core lineup, so the ETF will change its name to the iShares GNMA Bond ETF.
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Max Chen 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.