As one firm cuts costs for its flagship fund, another unveils new passive products
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The price war in the passive space has intensified further as two fund managers announced separate moves to bring cheaper funds to market.
Deutsche Bank’s asset management unit has brought down the expense ratio of its US$281m Xtrackers USD High Yield Corporate Bond ETF, reported the Financial Times. Originally set at 25 basis points, the fee for Deutsche Bank’s flagship fund has been reduced to 20 basis points — around half as expensive as similar junk-bond ETFs from BlackRock and State Street.
Meanwhile, Franklin Templeton Investments made its first entry into the passive space with a suite of 16 low-cost, region- or country-specific ETFs. Part of the firm’s LibertyShares ETF lineup, the new products — which focus on areas such as Australia, Germany, Japan, or Europe as a whole — cost just nine basis points annually.
Despite the recovering performance of many active managers, inflows into passive funds have persisted and pushed ETF assets to over US$4 trillion. ETF providers are vying for market share in the expanding landscape, and with the entry of new players like Franklin Templeton, some analysts are opening up to the possibility that certain simple ETFs will become essentially free.
“The fee wars have ramped up over the past few weeks,” Ben Johnson, head of ETF research at Morningstar, told the Times. “Despite all the new products, investor interest is still mostly for plain vanilla, cheap products. And that’s where we’ve seen the flows go this year.”
Johnson added that downward fee pressures are also spreading to more complicated smart-beta and fixed-income ETFs. “The price war is pervasive.”
Before the moves from Deutsche Bank and Franklin Templeton, State Street announced price reductions for 15 of its smaller ETFs and started using in-house indexes for three ETFs. Prior to that, Charles Schwab also launched an ETF that sought to replicate its own index.
At the same time, figures from the Investment Company Institute suggest that average expense ratios for US equity funds have fallen from around 99 basis points in 2000 to 63 basis points in 2016.
For more of Wealth Professional's latest industry news, click here.
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Deutsche Bank’s asset management unit has brought down the expense ratio of its US$281m Xtrackers USD High Yield Corporate Bond ETF, reported the Financial Times. Originally set at 25 basis points, the fee for Deutsche Bank’s flagship fund has been reduced to 20 basis points — around half as expensive as similar junk-bond ETFs from BlackRock and State Street.
Meanwhile, Franklin Templeton Investments made its first entry into the passive space with a suite of 16 low-cost, region- or country-specific ETFs. Part of the firm’s LibertyShares ETF lineup, the new products — which focus on areas such as Australia, Germany, Japan, or Europe as a whole — cost just nine basis points annually.
Despite the recovering performance of many active managers, inflows into passive funds have persisted and pushed ETF assets to over US$4 trillion. ETF providers are vying for market share in the expanding landscape, and with the entry of new players like Franklin Templeton, some analysts are opening up to the possibility that certain simple ETFs will become essentially free.
“The fee wars have ramped up over the past few weeks,” Ben Johnson, head of ETF research at Morningstar, told the Times. “Despite all the new products, investor interest is still mostly for plain vanilla, cheap products. And that’s where we’ve seen the flows go this year.”
Johnson added that downward fee pressures are also spreading to more complicated smart-beta and fixed-income ETFs. “The price war is pervasive.”
Before the moves from Deutsche Bank and Franklin Templeton, State Street announced price reductions for 15 of its smaller ETFs and started using in-house indexes for three ETFs. Prior to that, Charles Schwab also launched an ETF that sought to replicate its own index.
At the same time, figures from the Investment Company Institute suggest that average expense ratios for US equity funds have fallen from around 99 basis points in 2000 to 63 basis points in 2016.
For more of Wealth Professional's latest industry news, click here.
Related stories:
Aside from costs, what factors are critical for investments?
Passive investing will dominate equity market, says Vanguard founder
