The ETF fee race is far from over.
BlackRock has announced fee cuts for seven iShares exchange-traded funds in response to competition from low-cost competitors such as Vanguard Group.
According to Tuesday’s announcement the new management fee for BlackRock’s iShares Core S&P Total U.S. Stock Market ETF will be 0.03%, making it the cheapest ETF on the market, excluding those with temporary fee waivers. In plain English that means that fees amount to just $3 per year for every $10,000 invested, writes Chris Dieterich for Barrons.
BlackRock cuts fees in response to low-cost rivals Vanguard and Charles Schwab
“The entire U.S. stock market is the epitome of buy and hold, and price does matter more to those kinds of investors. It’s really importantly to have the most cost-efficient fund in that space,” said Ruth Weiss, head of the U.S. iShares team.
Other ETFs in the “core” buy-and-hold friendly product suite will have their fees reduced. BlackRock also announced the iShares Core International Aggregate Bond ETF, a new international bond ETF for which trading will begin on Thursday. Its expense ratio of 0.15% is even less than the rival Vanguard Total International Bond ETF, which has a ratio of 0.19%.
BlackRock also announced that its iShares Core S&P Total U.S. Stock Market ETF will follow the S&P Total Market Index from next week, a move which will make it more exposed to micro- and small-cap U.S. companies. As a result it will become more similar to the Vanguard Total Stock Market ETF.
Rivals eating in to BlackRock ETF market share
BlackRock currently holds $818 billion in ETFs, representing 38% of a total $2.1 trillion U.S. market. Although it remains the largest asset manager in the world, BlackRock has been losing market share to low-cost rivals Vanguard and Charles Schwab.
At the end of 2006 BlackRock held 58% of the total ETF market. In that time Vanguard has grown from 5.2% to 22% of the total ETF market share. Until the BlackRock announcement, Charles Schwab offered the two cheapest ETFs, at 0.04%.
Although Schwab only manages $37.5 billion in assets, or 1.8% of the market, the company is growing fast. In 2015 Schwab’s ETF asset growth rate is 28%, compared to 7.8% for BlackRock and 12% for Vanguard.