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Blackrock undercuts Vanguard with slashed fees

Blackrock has undercut Vanguard by slashing fees on an iShares emerging markets product and matching its rival’s pricing on four European equity funds.


Kristen McGachey

The ongoing charges figure on the $10bn Emerging Market ETF has fallen from 0.25% to 0.18% on both its accumulation and distribution share classes. Vanguard’s FTSE Emerging Markets ETF is now more expensive, charging 0.25%, the price of the original iShares vehicle.

The accumulation and distribution share classes on the €4.8bn Euro Stoxx 50 strategy have fallen from 0.16% to 0.10%, matching the OCF of Vanguard’s €9.9m ETF tracking the same index.

However, the iShares MSCI Europe and MSCI EMU ETFs saw the biggest cut to OCF falling to almost a third of their former price. The 0.12% OCFs are now in line with  Vanguard FTSE Developed Europe ex UK and FTSE Developed Europe.

Vanguard’s ETF products have favoured the FTSE indices since 2012 when the passives giant pulled 16 funds with roughly $530bn in assets from the MSCI as a way of cutting costs.

ETF name Original OCF New OCF
iShares MSCI Europe 0.35% 0.12%
iShares MSCI EMU 0.35% 0.12%
iShares Eurostoxx 50 0.16% 0.10%
iShares Emerging Market IMI 0.25% 0.18%

Revenue hit

The changes to the six iShares ETF charges come as the price war between active and passive managers continues to ramp up.

One source told our sister publication Portfolio Adviser that the hit to Blackrock’s revenues from the reduction in charges would be quite large but was needed to stay competitive. Blackrock’s iShares business accounted for 30% of the $10.9bn of revenue generated by the group in 2017.

The ETFs range in size from €1.7bn (£1.5bn) held in iShares MSCI EMU to $10.1bn (£7.6bn) in iShares Emerging Market IMI, according to Morningstar taken from 1 June 2018.

Blackrock’s iShares is the largest ETF provider, with over $1.8trn across 300-plus ETFs. But Vanguard, the second largest ETF provider, and State Street Global Advisors have been stealing market share by tempting investors with low prices.

Blackrock denied its decision to lower charges across some of its largest ETFs was in response to pressure from competitors putting down their prices.

“This is about investors, not competitors,” said a spokesperson for the fund group.

“There are many factors that investors care about when considering ETFs, including liquidity, tracking, breadth of exposure, cost and brand. The price changes reflect our ability to use the scale of Blackrock’s platform to create efficiencies for clients.”

Lyxor launched the cheapest core ETF range in Europe in March, which boasted a total expense ratio of 0.04%.