It’s tempting to think that PowerShares’ latest fee cuts on six ETFs means the No. 4 U.S. exchange-traded fund provider is jumping right in and joining iShares, Vanguard and Schwab in what many are calling a fee war in the U.S. ETF industry.
Not so quick, Ben Fulton, head of Wheaton, Ill.-based Invesco PowerShares told IndexUniverse.com Correspondent Cinthia Murphy. While the cuts—which amount to more than 40 percent on some of the strategies—are part of the overall downward pressure on fees in the financial services industry, they are mainly aimed at institutional investors who are becoming much bigger clients for PowerShares.
IU: In the wake of a round of fee cuts from several ETF providers this year, has Invesco PowerShares felt pressured to join this race to the bottom in terms of ETF fees? Is that the motivation here for these recent cuts, or is that putting it too simplistically?
Fulton: This is a step toward something we started three or four years ago when we lowered the fees on some of our U.S.-based fundamental products, knowing we wanted to lower fees on some non-U.S.-based ETFs at some point, too. But we needed to discuss it internally and with our board, and we also needed to see some track record in terms of asset growth first, which we did.
I don’t necessarily see these fee cuts in connection with what other ETF providers are doing because those cuts have been more in the “plain” beta space, where what we have is fundamental-based products. We understand that the enhanced beta cost needs to be priced differently, but we still thought that while these funds have had some amount of success, they warranted a reduction of fees. It was all basic product management—that’s what drove it.
IU: Do the fee cuts reflect asset growth that’s been slower than expected?
Fulton: No. In fact, what we’ve seen in fundamental indexing is that it used to be used primarily by individual advisors, but it has grown to include more institutional users, so we needed to price these funds more competitively to appeal to a broader clientele.
In the case of the S&P products, specifically, we tried to bring those more in line with some of the other S&P-linked products like the PowerShares low-volatility offerings. It’s really about housekeeping, but we do hope it will help attract more assets.
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