Passive, Low-Cost ETFs Attract Record Inflows

Exchange traded fund providers are attracting record inflows as more investors look to low-cost, passive index-based products to track market moves.

BlackRock Inc., the world’s largest asset manager and largest ETF provider, is experiencing record cash inflows, bringing in $140 billion to its iShares business last year, Bloomberg reports. Vanguard Group, the second largest ETF provider, attracted $93 billion.

Supporting the ongoing growth in the ETF industry, fund sponsors have become increasingly competitive as they slash ETF fees in an attempt to attract investor money. As we have witnessed over recent years, low-fees have been a very big selling point when it comes to ETF inflows.

For instance, over the past month, the Vanguard 500 Index (NYSEArca: VOO), which has a cheap 0.05% expense ratio, saw $2.0 in net inflows over the past month, according to XTF data. In contrast, the SPDR S&P 500 ETF (NYSEArca: SPY), which has a 0.10% expense ratio, saw $1.6 billion in outflows and iShares Core S&P 500 ETF (NYSEArca: IVV), which has a 0.04% expense ratio, added $418 million.

The major ETF players have been engaging a so-called fee war as more try to cut expense ratios to attract investment interest. BlackRock recently cut expenses on six of its smart-beta iShares ETFs, signaling that the ongoing fee war could be moving into the customized alternative index-based ETF segment.