BlackRock's iShares unit, the biggest ETF company in the world, is launching a new, dirt-cheap "Core" brand of ETFs within its existing universe of exchange-traded funds that will include four new and six existing funds.
The move, which includes price cuts of as much as 65 percent, reflects the company's promise earlier in the year to revitalize its ETF lineup in the face of a competitive onslaught from Vanguard as well as other ETF sponsors.
Among the new funds are some that look similar to existing ETFs, with one key difference being that the new ones are much cheaper. For example, its existing iShares MSCI Emerging Markets Index Fund (EEM) will be supplemented by the iShares Core MSCI Emerging Markets ETF. The new fund will cost 0.18 percent a year, almost three-quarters cheaper than EEM.
iShares’ decision to shake up its ETF lineup seems quite sensible to many who have watched Vanguard poach market share from iShares in recent years, undercutting the BlackRock unit’s first-to-market advantage it enjoyed with EEM and a number of other ETFs.
"In general, I think the move makes a ton of sense for iShares," IndexUniverse Director of Research Dave Nadig said. "There are many, many ETF-focused advisors who use a 'core and explore' strategy with their clients, and they're lining up this set of 10 funds as go-to choices for cost-conscious investors."
"iShares has been a bit out of the game for those folks, with extremely competitive offerings from Vanguard, State Street and most recently, Schwab," he added. "The new funds are good expansions of already-solid funds at iShares."
The funds involved, which will have much more competitive expense ratios, include:
- iShares Core S'P Total U.S. Stock Market ETF (ISI) will begin trading under the new ticker “ITOT” on Oct. 17 with a price tag of 0.07 percent. ISI has had an expense ratio of 0.20 percent.
- iShares Core S'P 500 ETF (IVV) will continue trading under its current symbol, but with an annual expense ratio of 0.07 percent as of Oct. 17, compared with IVV’s current price tag of 0.09 percent
- iShares Core S'P Mid-Cap ETF (IJH) will continue trading under its current symbol, but with an annual expense ratio of 0.15 percent as of Oct. 17, compared with its current price tag of 0.21 percent
- iShares Core S'P Small-Cap ETF (IJR) will continue trading under its current symbol, but with an annual expense ratio of 0.16 percent as of Oct. 17, compared with its current price tag of 0.22 percent
- iShares Core MSCI Total International Stock ETF, one of the new funds, will begin trading on Oct. 22 under the symbol “IXUS” with an expense ratio of 0.16 percent
- iShares Core MSCI Emerging Markets ETF, one of the new funds, will begin trading on Oct. 22 under the symbol “IEMG” with an expense ratio of 0.18 percent. By comparison, its flagship iShares MSCI Emerging Markets Index Fund (EEM) costs 0.67 percent a year and the Vanguard MSCI Emerging Markets ETF (VWO) is priced at 0.20 percent
- iShares Core MSCI EAFE ETF, one of the new funds, will begin trading on Oct. 22 under the symbol “IEFA” with an expense ratio of 0.14 percent.
U.S. Fixed Income
- iShares Core Total U.S. Bond Market ETF (AGG) will continue trading under its current symbol, but with an annual expense ratio of 0.08 percent as of Oct. 17, compared with its current price tag of 0.20 percent. Vanguard’s comparable Total Bond Market ETF (BND) costs 0.10 percent a year.
- iShares Core Long-Term U.S. Bond ETF (GLJ) will begin trading under the new ticker “ILTB” on Oct. 17 with a price tag of 0.12 percent. GLJ has had an expense ratio of 0.20 percent.
- iShares Core Short-Term U.S. Bond ETF, one of the new funds, will trade under the symbol “ISTB” starting Oct. 22 with an expense ratio of 0.12 percent.
What iShares Is Giving Up
The decision could pay off at a time when investors seem more and more focused on costs as they look for ways to eke out extra returns in the face of a sluggish economic environment characterized by near-zero interest rates.
But all that remains to be seen. What seems clear right now is that competitive pressures have pushed iShares to embrace this idea, and it does appear to be a good one, as Nadig said.
If IndexUniverse’s calculations are right, assuming no new net inflows, iShares will lose more than $37.5 million in revenue as a result of its price cuts.
Still, as Nadig suggested, iShares stands a good chance of stemming the setbacks in the asset-gathering battle with the likes of Vanguard. Indeed, when Vanguard’s now-$57 billion VWO eclipsed the now-$37 billion EEM to become the world’s-biggest developing markets ETF, it was a sore topic indeed at San Francisco-based iShares.
That asset-gathering battle of the two firms’ huge emerging markets ETFs became the ultimate metaphor for the broader story.
Vanguard’s rising momentum and its growing threat to iShares’ 40 percent stake in the U.S. ETF market had many looking for iShares to make the next move, including a Bernstein report that in September was already arguing that the only immediately actionable change in strategy for iShares would be price cuts.
Still, iShares remains the biggest ETF company by far, in part because it still enjoys first-to-market advantages, and also because it canvasses the investment universe more broadly than any other ETF sponsor. For example, its family of single-country equity ETFs is without parallel in the industry, and many remain free of competition.
As of Friday Oct. 12, iShares had more than $524.7 billion in assets under management while Vanguard had $231 billion, according to data compiled by IndexUniverse.
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