Fink says ETF price war a ‘myth’

Larry Fink, chief executive of BlackRock, dismissed talk of a price war among exchange traded fund providers as the world’s largest fund manager announced third quarter results on Wednesday.

“There is no price war. We have to move on from this myth about a price war,” said Mr Fink.

Earlier this week, BlackRock announced that it was creating a new range of 10 low cost ETFs, the iShares Core Series, aimed specifically at buy-and-hold investors by cutting fees on six existing ETFs and launching four new products.

BlackRock’s initiative on fees reflects the increasingly competitive nature of the US ETF industry.

Vanguard, the third largest US ETF manager which has traditionally been regarded as the lowest cost provider, has been able to use fee cuts to boost its market share.

But Charles Schwab, the seventh biggest US ETF manager, set a new industry low for ETF charges after it announced reductions in fees last month that undercut both Vanguard and BlackRock’s iShares.

However, Mr Fink played down expectations that BlackRock might decide to reduce fees elsewhere in the iShares ETF range while acknowledging that it was likely that other providers would likely strive to reduce their charges further.

“There will always be more and more competitive pressure [in the ETF industry],” said Mr Fink.

BlackRock has said the fee cuts will result in a hit of around $35m to $40m to iShares revenues but Mr Fink said he expected to see that offset by increased investor inflows.

The question and answer session with analysts following the results presentation was entirely taken up by questions about BlackRock’s ETF strategy and its new advertising campaign to promote iShares.

Refusing to be drawn on just how much BlackRock will spend on the US advertising campaign which is spread across television, the internet and in print, Mr Fink promised a “multi-year campaign to revitalise the iShares brand”.

He said iShares distribution partners had repeatedly emphasised the need to raise awareness of the iShares brand among investors and financial advisers.

Mr Fink was asked to explain why iShares had launched a new emerging markets ETF, known as IEMG, rather than reduce the charges on EEM, its largest emerging markets ETF. EEM has been overtaken in terms of assets by a directly competing product from Vanguard, known as VWO.

He said that institutional investors, the main users of EEM, considered not only at management fees but also at other costs such as bid-ask spreads and tracking error.

Trading liquidity for EEM was 2.5 times as large as VWO, its nearest competitor, said Mr Fink adding that many institutional investors wanted to remain benchmarked to the MSCI emerging markets index. Vanguard recently dropped MSCI as the benchmark for VWO in favour of the FTSE emerging index to save money.

He acknowledged that there was a possibility that assets would shift from EEM which charges 67bp into IEMG which charges 18bp but said that he did not expect to see significant migration between the two products.

Mr Fink noted that one client had withdrawn a $74.2bn indexed fixed income portfolio which went to a competitor that was prepared to do the business “at cost”.

However, Mr Fink said that BlackRock would not “chase business simply to bolster assets under management, as some of our competitors are certainly doing”.

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