iShares Slashes Bond ETF Fees

BlackRock cuts fees and changes indexes for several of its core ETFs. 

Last Friday, iShares slashed fees across its lineup of core ETFs, reducing expense ratios for 11 equity and fixed-income funds. Some bond ETFs’ costs dropped by more than 70%.

BlackRock also announced on Monday that four of its bond funds would get new names and indexes, effective Aug. 1.

Fee Cuts For 11 Funds

As of June 1, iShares reduced expense ratios for seven of its bond ETFs, as follows:

• iShares J.P. Morgan EM Local Currency Bond ETF (LEMB), from 0.50% to 0.30%
• iShares 1-3 Year Credit Bond ETF (CSJ), from 0.20% to 0.06%
• iShares Intermediate Credit Bond ETF (CIU), from 0.20% to 0.06%
• iShares 10+ Year Credit Bond ETF (CLY), from 0.20% to 0.06%
• iShares National Muni Bond ETF (MUB), from 0.25% to 0.07%
• iShares Short-Term National Muni Bond ETF (SUB), from 0.25% to 0.07%
• iShares U.S. Credit Bond ETF (CRED), from 0.15% to 0.06%

The cuts, which range from 40% to 72% off the fund's original expense ratio, will better position iShares as one of the least expensive issuers in the bond ETF space. At the moment, Charles Schwab, Vanguard and State Street Global Advisors dominate ultra-cheap fixed-income exposure. Only two of the 10 cheapest bond ETFs carry the BlackRock brand.

"The cuts in the bond space are really going to impact investors," said Dave Nadig, managing director of ETF.com. "Funds like MUB are core exposure for many people, and these are significant, meaningful changes in expense ratios."

Four iShares core equity ETFs also saw fee cuts, though not as dramatic:

• iShares Core MSCI International Developed Markets ETF (IDEV), from 0.07% to 0.05%
• iShares Core MSCI Total International Stock ETF (IXUS), from 0.11% to 0.10%
• iShares Core S&P U.S. Growth ETF (IUSG), from 0.05% to 0.04%
• iShares Core S&P U.S. Value ETF (IUSV), from 0.05% to 0.04%

The fee reductions will put IDEV, IXUS, IUSG and IUSV on par with the cheapest funds currently offered in their respective segments.

Index Changes

In addition, four bond ETFs—CSJ, CIU, CLY and CRED—will switch to new indexes from ICE and Bank of America Merrill Lynch. All four previously tracked Bloomberg Barclays indexes for their exposure.

CLY, CIU, CSJ and CRED's new indexes will narrow their exposures to purely corporate bonds, instead of the funds' current mix of corporate and sovereign debt.

The four funds will also get new names: CSJ will become the iShares Short-Term Corporate Bond ETF; CIU will become the iShares Intermediate-Term Corporate Bond ETF; CLY will become the iShares Long-Term Corporate Bond ETF; and CRED will become the iShares Broad USD Investment Grade Corporate Bond ETF.

Their tickers will remain the same, however.

Fee Cuts Across Bond ETFs

iShares' changes are the latest round of significant fee cuts for bond ETFs from the Big Three issuers, as each attempts to lure cost-conscious investors to its fixed-income lineup amid rising interest rates.

In late May, State Street slashed fees on the SPDR Bloomberg Barclays Mortgage Backed Bond ETF (MBG), from 0.20% to 0.06%. That's on the heels of its substantial price drop on six bond ETFs in October 2017.

Meanwhile, iShares also reduced expense ratios last year for eight of its core U.S. bond ETFs. In May 2017, Vanguard did the same for its four largest bond ETFs.

"We've seen really aggressive and responsive cuts from the big players in recent months," added Nadig. "It's clear they're willing to take a short-term revenue hit to win the long game."

Contact Lara Crigger at [email protected]