iShares rattles the core

Will the industry leader's recently announced fee cuts be enough to stem outflows and protect its market share?

John Gabriel 14 April, 2014 | 6:00PM

The gloves have come off in the ETF price war. After a successful campaign with its low-cost "Core" branded suite of ETFs in the United States, BlackRock iShares last month launched an iShares Core series in Canada. The announcement deserves to be celebrated, not criticized. Regardless, there are going to be those who have qualms over which iShares ETFs made the list and which were left off. Some industry followers might recall that when iShares rolled out its series in the U.S., it was a mix of new product launches and fee reductions on existing ETFs.

For example, rather than slashing the fee on its popular U.S.-listed emerging markets ETF, iShares MSCI Emerging Markets EEM, it launched a similar fund that tracks a broader and deeper index that includes mid- and small-caps. The new fund, iShares Core MSCI Emerging Markets IEMG, was offered at a bargain price of 0.18% per annum, while EEM with its nearly US$50 billion in assets maintained the hefty price tag of 0.69% (today the fund's expense ratio is 0.67%). This may have been a brilliant move with respect to BlackRock's bottom line, but it wasn't the most investor-friendly.

There seems to be a little bit of that going on with the Canadian launch, but I'm not complaining. I applaud iShares for slashing fees on nine of its ETFs. Still, notable omissions from the series include the country's largest ETF, iShares S&P/TSX 60 Index XIU, which has about $13 billion in assets. XIU's management fee remains 0.15% per annum, three times the fee now levied by the broader iShares S&P/TSX Capped Composite Index XIC.

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John Gabriel

John Gabriel  John Gabriel is a strategist for Morningstar’s manager research team.

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