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iShares Serious About ‘Core’

October 22, 2012
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EEMiShares MSCI Emerging Markets
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iShares’ new initiative shows marketing acumen and acceptance of an ETF world of cheaper, quality investment products.

 

BlackRock’s iShares may have been dragged kicking and screaming into the launch of its “Core” brand of ETFs, but now that it’s taken the leap, it’s hard not to take it seriously.

I had this epiphany while watching CNN on Saturday night after an ad for iShares came on.

It wasn’t any-old TV commercial either. That made me wonder just what the world’s biggest ETF company may have unleashed by finding a creative way to combat the competitive onslaught in recent years from fund firms such as Vanguard. More on that a bit later.

But first a bit more about the ad. The name “iShares” gets repeated numerous times, and the rapid edits give the whole thing a visual flavor appropriate to the times.

In a word, the advertisement was catchy, and the fact that it was rolled out before even the final pieces of the initiative were in place suggests that BlackRock intends to do this right.

Incidentally, for a case of how not to do it—in terms of timing, anyway—look no further than Scottrade’s failed ETF initiative. The company took about a year to cook up a comprehensive media campaign aimed at promoting its 15 low-priced FocusShares funds. It’s hardly a surprise that they’re now history.

Turning back to iShares, let’s say a viewer took the bait on Saturday night and is on the phone or Internet today with a broker to investigate what iShares is serving up.

First off, everything is good to go now with today’s launch of four new funds that are part of the package.

More profoundly, an investor taking iShares at its word and rolling a 401(k) into an individual retirement account consisting of some or all of the 10 funds that are part of the Core series would be well-served.

These securities are true indexing vehicles, canvassing broad areas of the investable universe, making them great core holdings—as the name suggests—in a perfectly credible asset allocation plan.

Even Vanguard founder and indexing pioneer John Bogle might have to approve of what his company’s arch rival is up to, right down to the very low price of the new Core funds.

Unfinished Work

To be sure, iShares’ plan isn’t perfect.

For example, iShares isn’t yet offering comprehensive free trading of the ETFs for its clients, as Vanguard and Schwab do. But some of them can be traded commission-free on various online platforms, such as Fidelity’s or TD Ameritrade’s. More to the point, don’t be surprised if iShares fills this gap quickly.

The other problem is that the offer may be too good to be true if you’re an investor who has held shares of, say, the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) for a long time.

Because of tax consequences, it’s not super likely you’d sell those EEM shares and replace them with shares of the just-launched iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG).

Sure, the new IEMG costs just 0.18 percent a year, compared with EEM’s 0.67 percent price tag. In other words, it’s a significant difference to be paying $18 a year in management fees on a $10,000 investment compared with $67 for EEM. But the tax bill on the nearly fourfold increase of EEM’s price since its inception about eight years ago is enough to wipe out any enticement to make the switch.

With this impediment in mind, some of our readers went as far as to say that the new, cheaper iShares funds were “a slap in the face” to such long-term holders.

 

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