iShares Presents ETF Fees In A New Way


iShares, the world’s largest ETF provider, has revamped the way it goes about reporting expense ratios on its website for 42 ETFs in what appears to be an effort to provide investors with a more-up-to-date fee than the one that appears in each of the fund’s prospectuses.

The iShares MSCI Emerging Markets Index Fund (EEM), which until Monday was listed on the company’s website as having an expense ratio of 0.67 percent, today shows two separate expense ratios:0.69 percent and 0.66 percent. EEM is just one of at least 42 iShares funds now presenting expense ratios this way.

The asterisks attached to the reported figures explain that the first number reflects fees as of Aug. 31, 2012—the end of the funds’ fiscal years—while the second is a snapshot of what EEM cost on Dec. 31, 2012.  The difference reflects an increase in fund assets in the last four months of 2012 that pushed costs down for investors.

iShares’ move follows headlines it made on Dec. 31 after it submitted updated paperwork to regulators that included higher fees on 40 ETFs, including EEM. All those funds—save for one—are the focus of the change in reporting by iShares. The higher fees in the prospectuses reflected prices as of Aug. 31, 2012—the end of the fiscal year for the ETFs, and, as is the case for EEM, the lower fees as of Dec. 31 reflect asset gains.

Our reporting on that caused a bit of a stir at the time, and the takeaway is twofold:First it’s clear that  fund sponsors care a lot about how their prices are perceived by an increasingly demanding investing public; and secondly, there’s a lot more than meets the eye when it comes to understanding how much a given fund costs.

The move doesn’t appear to have been required by regulators and, as best we can tell right now, iShares seems to be the only fund sponsor that is taking this dual-disclosure approach to reporting expense ratios on ETFs.

The San Francisco-based iShares told IndexUniverse the changes, which seem to be centered on the funds detailed in the recent prospectuses, apply to as many as 105 out of the firm's 280 ETFs.


Fruits Of The Fee War

The new approach comes at a time when investor scrutiny over ETF fees is on the rise, and many fund providers find themselves caught up in a so-called fee war as they vie for investor dollars.

Companies like Vanguard, Charles Schwab and iShares itself made headlines in the past year by reducing fees on several funds.

While small fee differences clearly don’t make a huge difference to returns over the arc of time, having bragging rights about low fees is something investors respond to and that fund sponsors strive for.

"This all wouldn't even be a story if it weren't for all the focus on fees in the past year," Rick Ferri, head of Michigan-based Portfolio Solutions said in a recent interview about all the talk surrounding the iShares funds.

As noted, the news about the updated iShares prospectuses detailing higher fees, as reported by IndexUniverse , caused a stir in the ETF market, because everyone has become accustomed to seeing fund fees drop, not rise.

At the time, iShares argued that the latest round of expense ratios were stale at best because they reflected averaged numbers good as of Aug. 31. The implication was that given the rise in assets funds like EEM have seen since then, fees were already much lower than what the latest figure in the legally mandated prospectus update portrayed.

Regulators require ETF providers to update their figures once a year at the end of the fiscal year for a given portfolio—Aug. 31 in the case of the iShares’ funds in question. Fund companies have 120 days to file such updated paperwork.


Permalink | ' Copyright 2013 IndexUniverse LLC. All rights reserved
View Comments (0)