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.)