ETF Fee War Intensifies, Ultimately Benefiting the End Users

Related: A Practical Guide to ETF Portfolio Construction

The ongoing fee war is seen as a loss leader strategy to attract a greater portion of the market share of the passive investment landscape. Some market observers are speculating that at the current pace, it will only be a matter of time before someone cuts fees down to zero.

“The fee wars have ramped up over the past few weeks,” Ben Johnson, head of ETF research at Morningstar, told the Financial Times. “Despite all the new products, investor interest is still mostly for plain vanilla, cheap products. And that’s where we’ve seen the flows go this year.”

As most flows are directed into cheap products, ETF sponsors that are dabbling in the burgeoning smart beta industry have also taken notice, cutting fees on more complicated alternative index-based strategies and fixed-income ETFs as well. “The price war is pervasive,” Johnson added.

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