BlackRock has opened a new front in the price war among exchange traded fund providers by slashing fees across a suite of nine US equity style investing ETFs with combined assets of $7.6bn.
The aggressive fee cuts ranging between 17 basis points and 24bp indicate that BlackRock is ratcheting up competition against its closest rival Vanguard, which provides similar products.
BlackRock is betting that the immediate drop in revenues from the reduced fees will be more than offset by faster asset growth in future.
The BlackRock iShares Morningstar US equity style box ETF range will now carry annual fees ranging between 3bp and 6bp.
Style box ETFs classify their constituents based on a combination of size and metrics measuring their bias towards growth or value.
BlackRock will also introduce share splits across the iShares Morningstar US equity style box ETF range in April, cutting the price of each ETF unit in a change that will make them more affordable to smaller investors. The share splits will increase liquidity but they will not affect the overall market value of the funds.
“We are on a mission to offer competitive and compelling choices so that every type of client, from do-it-yourself investors to advisers and institutions, can benefit from the scale of our platform,” said Armando Senra, Americas head of iShares at BlackRock.
The ETFs will track new “broad style” indices from Morningstar that cover larger market segments than their predecessors. They have been designed to reduce the number of building blocks required to build a diversified portfolio.
Ron Bundy, president at Morningstar Indexes, said the new indices would “empower investors to make better informed style investing decisions.”
More smaller companies and micro-cap stocks have been added to the Morningstar broad style indices which have a total of 4,105 constituents. ETF providers historically have avoided exposure to micro-cap companies as the high trading costs and poor liquidity of these tiny stocks diminishes the efficiency of index-tracking funds. The original Morningstar style indices had 1,393 constituent companies at the end of December.
More than $1.7tn in assets is held in US style box investing strategies which have seen a growth spurt in the early months of 2021 as a rotation into value-focused stocks and funds has gathered pace. Investors have poured $24bn in new cash into style box strategies so far this year, already more than half of $43bn gathered over the whole of 2020, according to BlackRock.
Aggressive price competition has helped to reduce fees for US index tracking equity ETFs by almost half since 2009 with the average asset weighted fee dropping from 34 basis points to 18bp in 2020, according to the Investment Company Institute. ETFs with the lowest fees have won a growing share of the new cash allocated by investors over the past decade, fuelling the cut-throat price war among asset managers.