Race to the Bottom: ETFs Cut Fees

tlydon@globaltrend.com (Tom Lydon)
February 14, 2012

New exchange trade fund product launches from BlackRock have instigated more price wars among the ETF providers. Product developers continue to slash fees in an effort to attract interest, which benefits investors, who get to keep more of their returns.

iShares , a leading exchange traded fund provider, has brought about 19 new funds to market in 2012. Many of the new launches have been priced competitively against similar funds that are managed by opponents, reports Chris Flood for Financial Times.

The good news is that ETF investors are poised to benefit from these price wars as the leading providers by market share are battling it out by slashing fees. Currently, State Street’s SPDR ETFs are the lowest cost equity sector funds trading in the market. [How ETFs Save on Fees and Taxes]

“Right before Christmas, Vanguard announced that it had sliced the expense ratios on its U.S.-equity sector ETFs by between 15% and 20%, with most Vanguard sector ETFs’ price tags falling to 0.19% from 0.24%. Now, State Street has undertaken a similar move with the fees of its nine popular sector ETFs, dropping them by 10% to 0.18% from 0.20%,” Robert Goldsborough wrote in a recent Morningstar article.

Both fund providers deny that the moves were made in response to outdoing the other, and that the price cuts were a result of growing asset levels, which allowed the cuts to happen. [Agriculture ETFs May Sprout on Reflation Trade]

Tisha Guerrero contributed to this article.