Passive Trackers Undercutting ETF Costs

BlackRock has slashed fees on many of its mainstream index trackers, with new annual fees far below its ETF counterpart  

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Editor, etf.com Europe
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Reviewed by: Rachael Revesz
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Edited by: Rachael Revesz

BlackRock has slashed fees on many of its mainstream trackers, with new annual fees far below its ETF counterpart.

On 11 August five of its core equity passive index tracker funds will halve their annual fees, to between 0.10 percent and 0.07 percent, from as high as 0.17 percent originally.

The funds cover UK, European and U.S. equites. When compared to an equivalent ETF from iShares, it is clear that there is not always a like-for-like alternative at such a cheap price. Unless an ETF has been packaged into a so-called "core" range, many fees are around 0.40 percent per year.

Fund

Current ongoing charge figure (%)

New OCF (%)

Comparable ETF and OCF (%)

BlackRock 100 UK Equity Tracker Fund

0.16

0.07

iShares Core FTSE 100 UCITS ETF – 0.07

BlackRock UK Equity Tracker Fund

0.16

0.07

iShares FTSE 250 UCITS ETF – 0.40

BlackRock US Equity Tracker Fund

0.16

0.08

iShares Core S&P 500 UCITS ETF – 0.07

BlackRock North American Equity Tracker Fund

0.16

0.08

iShares MSCI North America UCITS ETF – 0.40

BlackRock Continental European Equity Tracker Fund

0.17

0.10

iShares MSCI Europe ex-UK UCITS ETF – 0.40

Peter Sleep, senior portfolio manager at 7IM, said fees are beginning to align at a lower level in the major asset classes, which is great for the smaller investor.

“I used to be critical of ETFs as they were so expensive on a relative basis, but competition and the Retail Distribution Review is clearly bringing prices down and they are aligning at a much lower level.”

Sleep added that the cost of dealing should be an important consideration for small investors.

“For a small investor, as far as I am aware, tracking funds are free to trade and this often swings it towards tracking funds, particularly after today’s move,” he said. “Another thing that could sway investors in favour of trackers is that, if they are domiciled in the UK, they are covered by the UK Financial Services Compensation Scheme (FSCS), whereas ETFs are all domiciled abroad, ex one, and are not covered by the UK FSCS.”

Adam Laird, passive investment manager at Hargreaves Lansdown, said the price cut is good news, and although the BlackRock funds are not cheapest on the market, they are “good quality” funds.

“We’re watching now to see where the price war will go. Competition has been strong in developed equity – particularly the UK and U.S. – and there is realistically little room left to fall. However other sectors like bonds and emerging equity have been relatively untouched. I believe the next wave of price cuts will be in these areas.”

 

 

Rachael Revesz joined etf.com in August 2013 as staff writer. Previously an investment reporter at Citywire, she has a background in writing content for retail financial advisors and has covered a wide range of subjects in finance. Revesz studied journalism at PMA Media, which has since merged with the Press Association. She also holds a B.A. in modern languages from Durham University, as well as CF1 and CF2 financial planning certificates from the CII.