US ETF providers continue to lower fees in race to gather assets

May 1st, 2012 | By | Category: ETF and Index News

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In the race to gather assets, US ETF providers continue to lower fees, despite overall growth in the ETF industry.

ETF providers continue to lower fees in race to gather assets

Despite an amiable tailwind benefiting the whole ETF industry, ETF providers continue to lower fees aggressively in the race to accumulate assets.

In December last year, Vanguard lowered the expense ratio on a range of sector ETFs. That was followed in February this year by SSgA announcing a fee reduction across its Select Sector SPDR range. In the meantime, Schwab and FocusShares have been competing aggressively with a zero-commission promotion.

This ‘price war’ continued late last week when Vanguard came back and again cut fees across a swathe of its ETF portfolio, announcing on its website that: “Because your investment costs directly affect your net returns, Vanguard believes it’s important for you to be aware of your mutual funds’ expense ratios – in essence, the portions of the funds’ operating expenses passed on to you and other shareholders, expressed as a percentage of their total assets.

“A fund’s expense ratio may change from year to year in response to changes in its assets and/or changes in the cost of managing it. For example, economies of scale resulting from an increase in assets due to market appreciation or investor cash flow can result in a reduction, while a decline in assets can cause the expense ratio to rise.”

Today it’s been the turn of Van Eck Global, which has announced the lowering of the expense cap on its Market Vectors Indonesia Index ETF (IDX) from 60 basis points (bps) to 57 bps. As of 31 March, the fund had $537 million in assets under management.

“We are committed to building and maintaining a family of ETFs focused on providing investors with access to opportunities in emerging markets, hard assets, fixed income and more. Wherever possible, we look to reduce fees and expenses and pass those savings along to our investors,” said Adam Phillips, Chief Operating Officer of Market Vectors ETFs. “We’re pleased to lower IDX’s expense cap for the second time, and IDX currently has the lowest net expense ratio among the Indonesia-focused ETFs in the marketplace.”

According to Financial Advisor magazine, Morningstar data indicates a strong correlation between the lowering of expense ratios and an increase in asset inflows. “For three years, cash flows into the Vanguard Total Bond Market ETF (BND) have outstripped flows into the iShares Barclays Aggregate Bond Fund (AGG). BND’s expense ratio has fallen to 10 basis points in the last three years versus a steady 20 basis point expense ratio for AGG. Last year, BND overtook AGG in assets under management, and as of this year’s first quarter BND had $15.3 billion in assets versus $14.7 billion for AGG.”

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