More shots were fired in the Australian exchange-traded funds (ETF) fee wars last week as the world’s two biggest players in the space slashed prices.
Morningstar reported that both the Blackrock-owned iShares and Vanguard sliced fees by 40 per cent and 30 per cent, respectively, on their core Australian equities ETF products last week.
Vanguard’s A$3.6 billion Australian Shares Index ETF now costs investors just 0.10 per cent (down from 0.14 per cent) while the A$1.2 billion iShares ETF fee fell from 0.15 per cent to 0.09 per cent last week.
Both Vanguard and BlackRock said rising funds under management in their respective products was driving the significant price discounts.
In a release, Christian Obrist, head of BlackRock’s iShares business in Australia, said: “This change is part of the regular review of our pricing strategy, reflecting our continued growth and ability to leverage our scale for the benefits of clients.”
However, Morningstar associate director manager research, Alexander Prineas, said the outlandish success of the recently-launched bargain basement-priced BetaShares Australian core equities ETF was likely a factor.
BetaShares has gathered about A$500 million in its Australia 200 ETF – priced at 0.07 per cent – since launch last May.
Prineas said with iShares and Vanguard now chasing BetaShares down the fee ladder, the largest and oldest Australian shares ETF – the A$3.9 billion State Street SPDR S&P/ASX 200 – would come under pricing pressure.
“Incumbent providers face the tough decision of whether to follow with their own fee reductions to entice inflows, but potentially sacrificing some profit on the existing book of funds under management; or, maintain fees and profits, but potentially sacrifice new inflows,” he said.
“That’s a particularly tough choice for SPDR because STW is the largest and longest running ETF in Australia. It also remains one of the most liquid ETFs thanks to its size and the fact that it tracks the most widely used benchmark, the S&P/ASX 200 index. But STW is now priced notably above other rivals.”
While BetaShares products are not available on the NZX, the fast-growing Australian ETF provider has eyed up the NZ market. The firm was searching for a NZ head of distribution last year but has yet to appoint anyone.
Both Vanguard and iShares serve as underlying managers across most of the 31 NZX-owned Smartshares ETFs. The Smartshares products, which include a handful of in-house managed funds, range in price from about 0.3 to 0.75 per cent.
As at the end of May, Smartshares reported about $2.8 billion in funds under management, of which $1.8 billion was sourced from related NZX firm, SuperLife, and the remainder from external investors.
Since launching last month, the new suite of eight i-Shares managed Smartshares ETFs have collected more than $20 million from investors.
Also last week, iShares’ Obrist tipped the global bond ETF market to double over the next five years after reaching US$1 trillion in total funds under management this June.
“Global bond ETF assets are well positioned to double to US$2 trillion by 2024,” Obrist said in a release. “Investors are increasingly looking for alternative investment options to act as a shock absorber to their portfolios during periods of market volatility.”
Fixed income has been a relative laggard in the ETF product space – where it represents less than 1 per cent of the US$105 trillion global bond market – but he said conditions were ripe for rapid growth.
“It took nearly two decades for bond ETFs to surpass $US1 trillion in global assets, however, I believe the next leg of growth will be swifter,” Obrist said.
Smartshares included the iShares global bond index fund in the bundle of June ETF releases.