BlackRock Asset Management Canada Ltd. has taken a selective price-chopping axe to roughly one out of every 10 exchange-traded funds that it manages.
Nine ETFs are affected (see table), with fee cuts ranging from a modest four basis points in the case of iShares S&P 500 Index XUS all the way up to 35 basis points for iShares S&P/TSX Equity Income Index XEI. All of the fee reductions take effect on March 25.
In percentage terms, the deepest cut announced today was the 80% reduction of iShares S&P/TSX Capped Composite Index XIC. Its management fee is being slashed to 0.05%, down from 0.25%.
The sharp reductions make this fund the cheapest of any ETF listed on the Toronto Stock Exchange, placing it in an effective tie with Horizons S&P/TSX 60 Index ETF HXT as the lowest-cost provider. (HXT is a derivatives-based fund that has rebated a portion of the 0.07% fee specified in its prospectus.)
BlackRock Canada has applied its fee reductions to a group of existing ETFs -- two domestic equity, four foreign equity and three fixed-income -- that it has branded as the iShares Core series.
Mary Anne Wiley, a BlackRock Canada managing director and head of iShares Canada, told Morningstar the fee reductions are aimed primarily at buy-and-hold investors who are looking to build broadly diversified portfolios while keeping costs low.
"A dollar in the portfolio that isn't going to a management fee is a dollar that continues to grow and work for the investor," Wiley said.
BlackRock's selective fee cuts were not driven by economies of scale among the more than 90 TSX-listed ETFs that it manages. Eight of its 10 largest ETFs are unaffected, including iShares S&P/TSX 60 Index XIU, the industry's $12.4-billion behemoth, whose fee is unchanged at 0.17%.
When asked why most of the ETFs chosen for fee cuts weren't among the largest funds, Wiley initially replied that the company expects the reduced-fee funds to get bigger "because they are going to be attractive."
|Mary Anne Wiley|
Wiley added that total ownership costs to investors include not only management fees, but the costs associated with the spread between bid and ask prices when buying and selling. While management fees are the most important consideration for buy-and-hold investors, said Wiley, the trading spreads are more meaningful for investors who may be holding the fund for only short periods. (XIU, known for its tight trading spreads, is often held for short periods by institutional investors.)
Wiley also noted that XIC -- one of the ETFs selected for fee cuts -- is also a more broadly diversified core holding since it holds about 240 names. That's four times as many as XIU.
The iShares family dominates the Canadian ETF industry with $42.7 billion in assets and a 65.8% market share as of the end of February. But over the past year, asset growth has been modest at 3.2% versus 12.3% for the industry as a whole.
As a result, iShares' share of the market has declined by nearly eight percentage points, from 71.6% in February 2013. With so many new entrants in the market and a proliferation of funds that now total roughly 300, some loss of share by BlackRock is inevitable.
However, following today's announcement, taking away additional BlackRock shares isn't going to be as easy. The company's price cuts signal its intention to be an even more formidable competitor. "We intend to continue to be the leader in ETFs," said Wiley. "We're very committed to that."
|iShares fee reductions|
|iShares S&P/TSX Capped Composite Index||XIC||0.25||0.05||-20|
|iShares S&P/TSX Equity Income Index||XEI||0.55||0.20||-35|
|iShares S&P 500 Index (CAD-Hedged)||XSP||0.22||0.10||-12|
|iShares S&P 500 Index||XUS||0.14||0.10||-4|
|iShares MSCI EAFE IMI Index||XEF||0.30||0.20||-10|
|iShares MSCI Emerging Markets IMI Index||XEC||0.35||0.25||-10|
|iShares High Quality Canadian Bond Index||CAB||0.30||0.12||-18|
|iShares Cdn Short Term Corporate + Maple Bond Index||XSH||0.25||0.12||-13|
|iShares Canadian Long Term Bond Index||XLB||0.35||0.18||-17|
|Source: BlackRock Asset Management Canada Ltd.|