BlackRock trims fees on flagship US equity ETFs

Jun 25th, 2020 | By | Category: Equities

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BlackRock has trimmed the fees charged on its three flagship US equity ETFs providing exposure to large-, mid-, and small-cap segments.

BlackRock trims fees on its three flagship US equity ETFs

BlackRock has trimmed the fees charged on its three flagship US equity ETFs.

The action applies to BlackRock’s largest fund – the iShares Core S&P 500 ETF (IVV US) – which houses $193 billion in assets under management.

IVV has seen its expense ratio reduced from 0.04% to 0.03% which will save current investors $19.3 million in annual charges.

The move aims to strike back at rival ETF titan Vanguard which lowered the fees charged on its S&P 500 tracker – the Vanguard S&P 500 ETF (VOO US) – to 0.03% in April 2019.

Since that fee cut, VOO’s AUM has been catching up to IVV, gaining $35bn to reach its current level of $147bn. In contrast, IVV has grown by $16bn over the same period.

By bringing IVV back on par with VOO in terms of management costs, BlackRock will be hoping to re-establish some distance between the two ETFs.

Both funds are, however, still some way off the AUM held by the world’s largest ETF – the SPDR S&P 500 ETF (SPY US). Despite an expense ratio of 0.0945%, SPY has maintained its dominance and currently houses over $270bn. The fund is a go-to favourite for a host of institutional investors across many portfolio functions owing to its transparency and liquidity.

While IVV and VOO are now the joint-cheapest ETFs linked to the bellwether S&P 500 Index, several other providers are also staking a claim to the ultra-low-cost market through similar US large-cap offerings.

Charles Schwab provides the $20bn Schwab US Large-Cap ETF (SCHX US) which also costs 0.03%, while BNY Mellon recently debuted as an ETF issuer with a range of ultra-low-cost funds including the BNY Mellon US Large Cap Core Equity ETF (BKLC US) which comes with an expense ratio of zero, offered to investors without fee waivers or other restrictions.

Meanwhile, BlackRock has also reduced the management fee for the iShares Core S&P Mid-Cap ETF (IJH US), from 0.06% to 0.05%, and the iShares Core S&P Small-Cap ETF (IJR US), from 0.07% to 0.06%. The funds are BlackRock’s eighth- and ninth-largest ETFs, respectively, each boasting around $40bn AUM.

Vanguard, Charles Schwab, and SSGA also offer low-cost ETFs targeting US mid- and small-cap stocks. Each fund comes with an expense ratio of 0.05%.

They are the $31bn Vanguard Mid-Cap ETF (VO US), the $27bn Vanguard Small-Cap ETF (VB US), the $6bn Schwab US Mid-Cap ETF (SCHM US), the $9bn Schwab US Small Cap ETF (SCHA US), the $2bn SPDR Portfolio Mid Cap ETF (SPMD US), and the $2bn SPDR Portfolio Small Cap ETF (SPSM US).

Ultra-low-cost ETFs have become a major battleground for issuers in recent years due to a secular structural shift in the asset management industry which has seen funds move from active management to passive management, and especially towards lower-cost exposures.

This trend has been driven by the increased awareness that active managers, despite charging higher costs than passive funds, overwhelmingly fail to outperform their benchmark indices. According to Standard & Poor’s S&P Indices Versus Active (SPIVA) research, as of 30 April 2020, the S&P 500 outperformed more than 89% of all large-cap US actively managed mutual funds over the prior 20 years. A similar story has played out in the US mid-cap and small-cap markets where S&P’s indices outperformed 92% and 88% of actively managed funds, respectively.

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