ETF Provider Fees Topped $4.3B In 2012

By
Matt Hougan
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.


ETF DAILY DATA

Massive inflows into U.S. equity funds on Monday, Dec. 22, propelled total ETF assets to a new record.

'SPY' raked in more than $12 billion Monday, Dec. 22, pacing State Street's issuer-leading inflows on the day, as total U.S.-listed ETF assets jumped to $2.005 trillion.

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