As the exchange traded fund universe expands with more providers competing, ETF investors have become the ultimate beneficiary, enjoying lower and lower fees on the heated rivalry between fund sponsors.
The size of the global ETF market more than doubled in the past five years to $5 trillion as investors turned to the nifty investment vehicle, and many market observers don’t anticipate the growth to let up any time soon.
In the U.S. ETF market, which accounts for close to $3.6 trillion in assets under management, the lion’s share of new inflows have been funneled into low-cost passive products. Bloomberg Intelligence analysts calculated that 97% of the money that went into ETFs in 2018 coursed into products charging 0.2% or less, compared to 83% for the previous year, Bloomberg reports.
Consequently, the majority of U.S. cash invested in ETFs was found in products that charged the lowest fees.
For example, iShares “Core” ETFs and Vanguard ETFs were among the most popular ETF plays of 2018. Specifically, the iShares Core S&P 500 ETF (NYSEARCA: IVV) attracted $18.5 billion in net inflows and Vanguard 500 Index (NYSEARCA: VOO) brought in $13.9 billion, whereas the SPDR S&P 500 ETF (NYSEARCA: SPY) experienced $16.5 billion in net outflows, which suggests that investors are growing more aware of the importance of fees in long-term investments. IVV has a 0.04% expense ratio and VOO has a 0.04% expense ratio while SPY comes with a 0.09% expense ratio.
Related: J.P. Morgan Muscles in on the ETF Industry
There are currently 2,261 U.S.-listed exchange traded products on the market with an average expense ratio of 0.58%. There are now a handful of ETFs that come with a dirt cheap expense ratio of as low as 0.03%.
The race to zero is coming closer to reality. In August, Fidelity Investments began offering index funds charging zero fees. Timo Pfeiffer of Solactive AG, which constructs tailor-made indexes that $200 billion of investment products rely on, argued that ETF providers may end up paying for the privilege of having their products included in customers’ portfolios someday in the near future.
For more information on the ETF industry, visit our ETF performance reports category.