BlackRock counters Vanguard, Schwab and SSgA with low-cost iShares Core ETFs

Oct 16th, 2012 | By | Category: ETF and Index News

In a bid to counter rivals, BlackRock has announced the creation of the iShares Core Series, a suite of 10 ultra-low-cost ETFs designed to meet the needs of long-term, buy-and-hold investors.

BlackRock counters Vanguard, Schwab and SSgA with low-cost iShares “Core” ETFs

BlackRock’s iShares remains the biggest ETF provider in the US.

The move represents an escalation of the price war that is raging in the US ETF market, which has seen management fees tumble as providers compete for assets. [See Schwab slashes fees across ETF range in bid to win assets].

While iShares remains the world’s largest ETF provider by assets under management and the biggest player in the highly competitive US market, it has been under pressure from rivals who have aggressively slashed fees in a ploy to win business.

Among iShares’ fiercest competitors has been indexing giant Vanguard, whose share of the market has increased from about 12% three years ago to 18% today. During the same time iShares’ market share has shrunk from around 48% to 41%. [See Vanguard takes lion’s share of US ETF inflows – for second consecutive month].

With broadly similar products (at least for the bulk of their assets), iShares’ pricier line-up has been cited as the major reason for its loss of market share to Vanguard. On a like-for-like basis, iShares’ funds have consistently had higher expense ratios. The launch of the low-priced iShares Core Series, which is composed of four new and six existing funds, is seen as a reaction to this loss of market share.

Mark Wiedman, Managing Director and Global Head of iShares, said: “As we look to build on our market-leading position in the ETF industry, we are taking a number of steps to further bolster our value proposition for investors, with an initial focus on the United States.”

The four new funds will start with low expense ratios, while the six existing funds have had their expense ratios cut dramatically to bring them into line with competitors.

The price cuts iShares is rolling out among its existing funds are material. For example, the iShares S&P 1500 Index Fund (ISI), which is to be renamed the iShares Core S&P Total US Stock Market ETF (ITOT), will see its expense ratio cut from 0.20% to 0.07%. This compares more favourably to the fee on the comparable Vanguard ETF, the Vanguard Total Stock Market ETF (VTI), which charges 0.06%. Similarly, the expense ratio on the iShares S&P 500 Index Fund (IVV), to be renamed iShares Core S&P 500 ETF, will be cut from 0.09% to 0.07%. This is closer to the fee on the Vanguard S&P 500 ETF (VOO), which is 0.05%.

In the bond space, the iShares Barclays Aggregate Bond Fund (AGG), to be renamed iShares Core Total US Bond Market ETF, will see its expense ratio cut from 0.20% to 0.08%. The comparable Vanguard fund, the Vanguard Total Bond Market ETF (BND), charges 0.10%.

While the fee differences may seem immaterial, in a low-return environment with interest rates at all-time record lows, two basis points could be enough to woo investors.

With their low fees and comprehensive coverage, the 10 funds are likely to be well suited for use as “core” long-term portfolio building blocks within a “core-satellite” strategy, which can then be supplemented with more specialist ETFs, so-called “satellites”, to address more specific needs or take advantage of shorter-term tactical opportunities.

Wiedman added: “We believe that every investor is unique, and with the iShares Core Series, investors have the opportunity to match their large, long-term core holdings to their individual needs and still have the flexibility to complement them with more specialised ETFs that suit their specific objectives.”

The name changes and fee reductions will take effect on October 17, 2012. The new funds are expected to begin trading on October 22, 2012.

The iShares Core Series comprises the following funds:

US Equities

iShares Core S&P Total US Stock Market ETF (ITOT)
iShares Core S&P 500 ETF (IVV)
iShares Core S&P Mid-Cap ETF (IJH)
iShares Core S&P Small-Cap ETF (IJR)

International Equities

iShares Core MSCI Total International Stock ETF (IXUS)
iShares Core MSCI Emerging Markets ETF (IEMG)
iShares Core MSCI EAFE ETF (IEFA)

US Fixed Income

iShares Core Total US Bond Market ETF (AGG)
iShares Core Long-Term US Bond ETF (ILTB)
iShares Core Short-Term US Bond ETF (ISTB)

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