"The impact of consumer preference for ever-lower fees is really laying bare those products that are uncompetitive," said Elisabeth Kashner, director of ETF research for FactSet Research Systems Inc.
The "ETF fee war," as many have called it, has been particularly offensive to the largest ETF in the U.S. Though the SPDR S&P 500 ETF Trust remains the market's liquidity stalwart, it has spent several years losing ground to cheaper S&P 500 trackers from Vanguard Group and BlackRock Inc. Since the beginning of 2017, these competing products have both taken in more than $60 billion each at an expense ratio of 0.03%, while SPY has experienced net outflows of nearly $35 billion against a 0.09% expense ratio.
To its credit, SPY still holds $301 billion in assets and its structure as a unit investment trust makes it cleaner for traders to use against futures and options positions, even State Street Global Advisors acknowledged the product's shortfalls. In January, SSGA shifted the index of an existing large-cap ETF to the S&P 500. The product was already priced to match competing S&P 500 products from BlackRock and Vanguard and has since seen $2.3 billion in inflows.
(At a 0.4% expense ratio, the SPDR Gold Shares ETF was on the same path as SPY — losing ground to competing gold products at half the cost or less — until a rally in trading volume helped drive nearly $20 billion into the product this year.)
As the market leaders in ETF assets, BlackRock and Vanguard have benefited tremendously from the ongoing shift to low-fee ETFs. Yet, in 2020, Vanguard, which has an asset-weighted expense ratio of 0.06% across its ETF products, has outpaced the competition in net inflows.
In an analysis that looks at the "fund flows gap" — whether a fund family is seeing fund flows commensurate with its start of year market share — Vanguard, at $113 billion in net inflows through Aug. 31, is $52 billion ahead of its expected flows, according to FactSet's Ms. Kashner, while BlackRock and SSGA are $34 billion and $29 billion behind expectations, respectively.
Cheapness, however, is not a cure-all without brand or distribution. A suite of eight low-cost ETFs from BNY Mellon Investment Management, including core debt and equity funds with ero expense ratios, have seen very little interest since their April launch.