The WSJ reports today that BlackRock is slashing fees on one of its index ETFs by almost 75%.
An investor friendly move?
Maybe, but we are talking a reduction from 4 one hundredths of a percent to 1.25 one hundredths of a percent. For every $1,000 invested, ETF holders save a whopping 25 cents.
You probably tip the coffee girl more than that every morning.
This race to the bottom in index-based ETFs is getting silly. Compound out the difference between 4 basis points and 1.25 basis points for 30 years and you’d barely have enough to take your wife to dinner.
And let’s not forget who’s fooling who here. ETF providers aren’t in the charity business. At best, the most benevolent are able to squeak out a small profit from rebates on securities lending. More likely the ultra-low cost ETFs are used as bait to bring in investors and then hawk higher cost alternatives.
The Journal has more.
Asset managers typically hope low-cost products will draw customers that will also invest in their more lucrative strategies. BlackRock is moving more aggressively to expand into strategies such as private equity that command higher fees than stock and bond funds.
For large investors such as sovereign-wealth funds and pension funds, even a fraction of pennies on a dollar can translate to savings over the long haul. One firm called Salt Financial even wants to pay early investors to come into a new ETF, a sign of how far managers are willing to go as they battle for the attention of cost-conscious customers.
To be sure, costs aren’t the only consideration for investors, who have to weigh factors such as risks and performance.
Read more here.
Jeremy Jones, CFA
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