Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 ESG Investing
    • 2023 Private Markets
Breadcrumb
  1. Home
  2. EXCHANGE-TRADED FUNDS
December 11, 2017 12:00 AM

Managers waging battle over fees on several fronts

Ari I. Weinberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Getty Images/iStockphoto

    The competitive pressure on ETF fees climbed (or dropped) to a new plateau this fall as several asset managers revealed products or pricing designed to attract assets and attention.

    This race to the bottom in expense ratios will ultimately benefit the largest issuers — BlackRock's iShares and Vanguard — and those with significant brokerage or custody platforms that are most able to weather a commoditized product market.

    For institutional investors and financial intermediaries, differentiation will boil down to index choice and construction, secondary market volume, and platform incentives. Yet, according to the recently released Brown Brothers Harriman ETF.com 2017 U.S. Investor Survey, 64% of those surveyed deemed expense ratio as "very important" in choosing an exchange-traded fund, ranking highest among 10 factors institutional investors and advisers were asked to consider.

    According to XTF, 150 U.S.-listed ETFs had expense ratios of 0.1% or lower through Nov. 30, accounting for $1.39 trillion in assets (of which 83% is invested in equities.) Five have published expense ratios of 0.03% — the $12.8 billion iSharesCore S&P Total Market, two products from Charles Schwab with $11 billion each, and two competing products from State Street Global Advisors with $1 billion in assets combined.

    SSGA's expense ratio reductions for a suite of 15 "plain-vanilla" products in October marked that issuer's most aggressive salvo in the ongoing fee war. The Boston-based manager coordinated its move with an index shift for three products from the Russell 1000, Russell 2000 and Russell 3000 to self-indexing.

    Simultaneously, brokerage firm and custodian TD Ameritrade introduced those 15 products to its commission-free ETF program while shifting all products from Vanguard and several ETFs from Blackrock out of the program.

    (In response to pushback from financial advisers, TD extended to mid-January from mid-November a grace period for advisers to make commission-free portfolio changes.)

    Undercutting expands

    Although asset growth for new products can be slow, expense waivers or reductions can signify new competitive fronts and often spur incumbents to respond by matching or undercutting the pricing of similar products.

    One recent move shined a spotlight on the market for single-country exposures, now dominated by BlackRock products tracking MSCI indexes. In early November, Franklin Templeton Investments launched 16 single-country and regional ETFs tracking FTSE indexes, many with 0.09% expense ratios compared to 0.48% for most iShares country funds.

    Although assets in those new funds are still small and trading volume insignificant, the cost will garner attention from competitors quickly. According to BBH, 50% of investors and advisers are willing to adopt a new product within its first year of trading.

    "While iShares has a significant leg up in reputation when it comes to ETFs, Franklin does have brand awareness stemming from its legacy mutual fund business," said Brendan Powers, a product development analyst with Cerulli Associates in Boston. "Given the focus on cost when selecting pure beta products, it would be hard to imagine the Franklin products not being considered by clients looking at single-country exposure."

    Other areas where fee pressure is increasing and product choice is expanding include core "smart beta" factor exposures (momentum, quality, size, etc) with the expected launch of new Vanguard active equity ETFs in the first quarter of 2018 to be priced at 0.13%; commodities with this year's launch of low-priced GraniteShares exposures for gold and broad-based commodities; and even "pure beta" exposures where Invesco PowerShares, long a proponent of smart beta and factor-based indexing, has launched low-priced plain-vanilla ETFs.

    "Certain marquee funds will maintain an audience because of trading volume but will likely cease to grow," said Dave Nadig, president of ETF.com, a fully owned, editorially independent subsidiary of Cboe Global Markets.

    He points to the significant trading in the SPDR S&P 500 ETF, or SPY, while assets have flowed to competing S&P 500 products from BlackRock and Vanguard, which are lower priced and have a structural advantage as mutual funds relative to SPY as a unit investment trust.

    Mr. Nadig also cited as an example iShares' introduction of its Core lineup several years ago, which featured a few ETFs in direct competition with its own legacy products, but with expanded exposures and lower fees.

    Yet, Mr. Nadig said the "fee war" discussion misses the larger point about the mispricing of asset management generally. "How much money in dollars should it take to run a certain portfolio?" asked Mr. Nadig. "The variable cost for an institutional S&P 500 portfolio is probably one basis point at best. What we should be asking ourselves is whether a certain product is really worth the total amount the manager is charging to run it."

    Kathleen Moriarty, partner at Chapman and Cutler LLP in New York, noted a fund adviser can lower expense ratios on its own accord but can't raise fees without approval from the majority of the fund's board members.

    Related Articles
    ETF assets expected to rise 73% by 2020, dominated by institutional investors –…
    ETFs offer plethora of risk management alternatives
    Commentary: Customized asset allocation could be key to successful portfolio ma…
    Index managers becoming more proactive in corporate governance — Morningstar
    Nomura uses changes in policy to prepare for uncertain markets
    Classification revisions pose challenge to investors
    Insurers begin staking their claims in ETF territory
    Mutual fund, ETF fees continue to drop – Morningstar
    Recommended for You
    ONLINE_815009999_PH_4_DIIFSHYDJWFS.jpg
    Schwab bond ETF logs $4.6 billion inflow amid quarter-end shuffle
    tokyo_stock_exchange_sign_1550-main_i.jpg
    Tokyo Stock Exchange seeks public comment regarding actively managed ETFs
    Cathie Wood
    ARK's Cathie Wood 'bracing for a hard landing,' sees Tesla at $1,600 per share
    ESG Investing | Industry Brief
    Sponsored Content: ESG Investing | Industry Brief

    Reader Poll

    March 22, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    The Need for Speed in Trend-Following Strategies
    Global Fixed Income: Volatility and Uncertainty Here to Stay
    Morningstar Indexes' Annual ESG Risk/Return Analysis
    2023 Outlook: The Top Five Trends to Monitor in the Year Ahead
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 ESG Investing
      • 2023 Private Markets