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.
“In 2016, it is fair to say across all investor types there was a movement more toward passive strategies,” Chief Executive Officer Laurence D. Fink told Bloomberg. “When I am able to increase margins and increase market share through price cuts I am going to do that. The key element is scale.”
Larger players like BlackRock are capable of cutting fees on a number of its products due to their huge scale as many of their ETFs are among the largest available in each respective asset category.
In recent weeks, ETFs have also attracted huge inflows following Donald Trump’s presidential election win as investors bet on expansionary economic policies under the new Trump administration. Over half of the new ETF inflows went into products with an average fee of 0.09% or less, according to Bloomberg Intelligence.
There are now U.S.-listed 1,978 exchange traded products, which include both ETFs and exchange traded notes, with $2.6 trillion in assets under management and an average expense ratio of 0.57%. The cheapest ETF options include broad U.S. stock strategies with a dirt cheap 0.03% expense ratio, including the iShares Core S&P Total US Stock Market ETF (NYSEArca: ITOT), Schwab U.S. Large-Cap ETF (NYSEArca: SCHX) and Schwab U.S. Broad Market ETF (NYSEArca: SCHB).
For more information on ETF flows, visit our ETF Performance Reports category.