BlackRock Takes ETF Price War Into Smart Beta

Commentary on Bloomberg article by Sabrina Willmer

BlackRock is cutting expenses by up to 20 basis points on six smart beta exchange traded funds, Bloomberg writes. This will give the firm a leg up against low-cost multifactor products from Goldman Sachs, according to the publication.

Smart-Beta: The Fastest-Growing ETF Strategy in 2016

Smart beta funds, by adding additional factors, usually come at a higher cost than traditional ETFs, which are weighted merely by market capitalization, according to Bloomberg. This strategy has grown more than any other this year, according to Bloomberg. Morningstar reports that the existing 204 multifactor ETFs are worth $39 billion in total assets, the publication writes.

Of the 17 multifactor options at BlackRock, the reductions apply to six, including iShares Edge MSCI Multifactor USA ETF, iShares Edge MSCI Multifactor USA Small-Cap ETF, and iShares Edge MSCI Multifactor International ETF, according to Bloomberg.

Previously, BlackRock's average expense ratio on multifactor products was around 0.37%, compared to Goldman Sach's 0.26%, according to Morningstar, Bloomberg writes. Over the last two years, BlackRock has accumulated $803 million in assets, according to the publication. But Goldman Sachs has secured $2.6 billion since first offering multifactor ETFs last September, and has rolled out some with expense ratios as low as 0.9%, Bloomberg writes.

BlackRock’s newest reductions is a continuation of price wars in more traditional ETFs. In October, BlackRock lured in buy-and-hold investors by discounting 15 stock and bond funds, which has since paid off with $17.9 billion in new assets, according to Bloomberg data. And back in 2015, expense ratios on seven of BlackRock’s U.S. listed ETFs were set at as little as three basis points to entice more price-sensitive investors.

Source: Bloomberg

Posted by: The Trust Advisor



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