iShares’ Core ETFs More Expensive Than Competitors

June 16, 2014

iShares is jostling to keep hold of its dominant market share in European exchange traded funds (ETFs), but hopes the new core, building block ETF range can target a new retail audience, despite being more expensive than competitors.

Last year iShares accounted for half of the inflows into European ETFs yet only account for 33 percent from January to April this year, according to data from research house Lipper.

But iShares is determined to defend its market share and is pushing into the retail space, targeting new individual investors, self-directed and high net worth clients via a line-up of "core" building block equity and fixed income ETFs with lower costs.

The provider’s core prices range from 0.07 percent for the S&P 500 to 0.25 percent for the iShares Core MSCI Emerging Markets IMI UCITS ETF, while the average price for the range is 0.16 percent.

 

This compares to db X-trackers core range, launched in February, which offers seven equity funds at 0.09 percent, except the Nikkei 225 UCITS ETF at 0.25 percent. For example, the iShares Core Dax UCITS ETF is set at 0.16 percent, while the db X-trackers Core Dax UCITS ETF is 0.09 percent. The range has an average price of 0.11 percent, some 0.05 percentage points cheaper than iShares.

Mark Johnson, head of UK sales at iShares, said the core range’s pricing is “nothing to do with anyone else…. This is about identifying a new market in the UK. We hope to catalyse a new part of the retail space for long term buy and hold portfolios."

“[By] positioning for 20 bps [basispoints] or thereabouts you can create interesting, diversified and balanced exposure to global equity and global fixed income,” he said. “The retail market is key to our success and we think we will be able to develop relationships with a growing part of that market, particularly post RDR where people are cost conscious."

However, one chief investment officer at the ETF.com conference earlier this month, who did not want to be named, said that the core ETF range at iShares may have dropped prices, but only to “a reasonable level” and more in line with competitors, but has not dropped to the extent that it has now very cheap funds.

This is the second time in recent months that iShares has attracted critics on its fund pricing. After inheriting over 50 ETFs from Credit Suisse, the provider retained higher price tags on its larger, more liquid funds and dropped prices for the smaller ETFs.

When asked if existing investors are getting the best deal, Johnson replied: “Our large, more liquid funds tend to be used by people with short term horizons, and who value the tight spreads and liquidity that comes with those products – they tend to use them in a different way.”

iShares introduced its core range in the U.S. at the end of 2012 – it doubled the fund line-up to 20 this month – and brought the concept to market in Canada earlier this year. But rather than being a massive asset gatherer among new, retail investors, the U.S. range has seen big institutional inflows.

“Institutional investors saw the core pricing and thought it was attractive for them, and although they weren’t the target market, they were attracted to the low cost beta,” confirmed Johnson.

 

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