ETF Provider Fees Topped $4.3B In 2012

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February 05, 2013
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Basic assumptions aside, ETF sponsors' hauled in 26 percent more in 2012 from fund fees than in 2011 despite a full-blown price war.

 

How much did the U.S. ETF industry bring in last year from fund fees?

The answer, using very blunt math and some simplifying assumptions, is $4,258,804,274.49.

That number is riddled with errors, but it gets you in the ballpark. To calculate it, I took the assets under management of all ETFs and ETNs listed in the U.S. at the end of 2012 and multiplied them by their stated expense ratio.

This consciously overlooks a number of things, including:

  • ETF assets generally grew during 2012, and I used year-end data to calculate the fees, therefore overstating how much the industry actually earned.

  • Some ETFs launched partway through the year, but I applied the expense ratio as if it were charged for the full year, again overstating revenues.
  • Offsetting this, expense ratios generally drifted lower throughout the year. By using the year-end expense ratio, I understated the earned revenue.
  • The expense ratio is not the only source of revenue for these firms.

 

Nonetheless, $4.3 billion is an interesting number, and it puts the growth of the ETF industry in context. We talk a lot about how low ETF fees are, and they are. But still, this is a real industry: $4.3 billion is real money.

It’s also up since last year. A lot. Using the same simplifying methodology, ETF industry revenues from fees in 2011 were about $3.4 billion—a 26 percent increase in revenue is pretty good.

What else can we learn?

The top-12-earning ETFs make an interesting list. The iShares MSCI Emerging Markets ETF (NYSEArca: EEM) generates the most revenue from its expense ratio of any ETF, with $323 million in annual fees. The SPDR Gold Shares ETF (NYSEArca: GLD) nearly matches it, despite a lower expense ratio, as its larger asset size helps drive nearly $290 million in fees.

Going down the list, there are a few surprises, and one that drives me crazy.

Top-Grossing ETFs As Of 12/31/12 (Based on Expense Ratio)

Fund

Ticker

ER

AUM ($mm)

Revenue ($mm)

iShares MSCI Emerging Markets

EEM

0.67% $48,184 $322.83

SPDR Gold

GLD

0.40% $72,239 $288.96

iShares MSCI EAFE

EFA

0.34% $38,814 $131.97

Vanguard MSCI Emerging Markets

VWO

0.20% $59,097 $118.19

SPDR S&P 500

SPY

0.0945% $123,000 $116.24

iShares iBoxx $ High Yield Corporate Bond

HYG

0.50% $15,972 $79.86

iShares FTSE China 25

FXI

0.74% $8,495 $62.86

Alerian MLP

AMLP

1.40% $4,449 $62.29

PowerShares DB Commodity Tracking

DBC

0.93% $6,608 $61.45

PowerShares QQQ

QQQ

0.20% $30,417 $60.83

iShares MSCI Brazil

EWZ

0.61% $9,303 $56.75

iShares S&P U.S. Preferred Stock

PFF

0.48% $10,761 $51.65

 

For starters, look at Vanguard. Vanguard may be an ultra-low-cost provider, and getting broad-based emerging markets exposure for 0.20 percent is an amazing deal, but VWO is pulling down $118 million-plus in fees each year. That’s not bad for a co-op!

The iShares Preferred Stock ETF (NYSEArca: PFF) shocks me too: When did that become a $10 billion-plus fund earning $50 million-plus per year?

On the “drive-me-crazy” side, you have the iShares FTSE China 25 ETF (NYSEArca: FXI). The fund is generating more than $60 million a year in fees thanks to its high expense ratio, despite the fact that there are cheaper products offering better exposure to China. There’s even one from iShares itself: the iShares MSCI China ETF (NYSEArca: MCHI), which charges just 0.60 percent in annual fees. Did I mention that MCHI outperformed FXI by almost 5 percentage points last year? Investors could have saved $11 million in fees, and gotten better performance to boot!

Of course, not all ETFs are making their issuers money. There are 477 ETFs generating less than $100,000 in revenues from fees each year. Those aren’t buying anyone any yachts.


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