BlackRock cuts fees on MBS and TIPS ETFs

Jan 20th, 2022 | By | Category: Fixed Income

BlackRock has trimmed the fees charged on two giant fixed income ETFs providing low-cost core exposure to mortgage-backed securities and short-term US Treasury inflation-protected securities.

BlackRock cuts fees on flagship MBS and short-term TIPS ETFs

BlackRock has lowered the fees charged on its headline MBS and short-term US TIPS ETFs.

The $25.0 billion iShares MBS ETF (MBB US) has had its expense ratio lowered by two basis points to 0.04%, while the $9.2bn iShares 0-5 Year Tips Bond ETF (STIP US) has had its price tag shaved by one basis point, down to 0.03%.

Following the fee cuts, investors in the ETFs stand to save approximately $5.9 million per year in annual management fees at current AUM levels.

The iShares MBS ETF is the largest ETF to target the US MBS market and, following the reduction in expense ratio, its price is now back on an even footing with its nearest rivals.

Competition amongst MBS ETFs started to heat up in March 2021 when State Street Global Advisors lowered the cost of its $4.2bn SPDR Portfolio Mortgage Backed Bond ETF (SPMB US) from 0.06% to a record 0.04%. The move was successful with SPMB having since accumulated around $800m in assets, while BlackRock’s MBB has shed approximately $1.5bn over the same period.

These dynamics likely contributed to Vanguard’s decision last month to lower the expense ratio on its $15.0bn Vanguard Mortgage-Backed Securities ETF (VMBS US) by one basis point to match SPMB’s cost. The move was part of a larger cost-savings initiative by Vanguard that saw the issuer trim fees across nine core fixed income ETFs.

The iShares 0-5 Year Tips Bond ETF, meanwhile, is the second-largest ETF to target short-term US TIPS after the $20.0bn Vanguard Short-Term Inflation-Protected Securities ETF (VTIP US). Both ETFs provide exposure to TIPS issued by the US government which have remaining maturities under five years.

With VTIP charging fees of 0.05%, STIP was already the cheaper of the two; however, BlackRock will be hoping that the extra basis point shaved off the fund’s price will help it to wrest market share. The move is timely as soaring inflation and the growing possibility of interest rate increases from the Federal Reserve have boosted demand for short-duration TIPS exposure – between 1 February 2021 and 18 January 2022, STIP and VTIP have attracted more than $5.7bn and $9.5bn in net inflows, respectively.

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