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Price War Only Part Of The ETF Cost Story

Written by Rebecca Hampson and Paul Amery

 –  November 02, 2012

European exchange-traded fund providers have canned reports that there is an ETF price war, labelling such allegations too dramatic.

However, shrinking opportunities for European issuers to earn money behind the scenes from their fund ranges suggest that fee comparisons may become much more important in the future and that Europe’s ETF market may follow the US in competing on price.

In recent weeks a number of commentators have referred to a price war in the US ETF market, prompted by decisions from fund providers BlackRock and Charles Schwab to launch cheaper trackers or to cut management fees on existing ones.

The moves by BlackRock and Schwab have been widely interpreted as an attempt to address the competitive challenge from low-cost ETF provider Vanguard, which has dramatically increased its US market share in recent years after a late entry to the exchange-traded fund business.

Similar moves are starting to take place in Europe. Last week the third-largest European ETF provider, Lyxor, announced that it was also reducing fees on seven of its core equity ETFs.

Reports in the press said that the fee reductions from Lyxor were intended to “enhance the competitiveness of these key funds”.

However, several European based providers have told IndexUniverse.eu that reports of a price war are not true and that the European ETF market is not ready for a battle over costs.

Clemens Reuter, head of ETFs at UBS said: “I really don’t see a price war in Europe. The products have always been competitively priced. We see more of this in the US between top ETF providers.”

Manooj Mistry, head of db x-trackers UK, agreed, saying: “There is price competition but to say there is a price war is dramatic. It’s more relevant for the US, which is a much more mature market. In Europe, we see investors needing education on ETFs and there still needs to be better general awareness of the product.”

While Lyxor has lowered the total expense ratios (TERs) on six of its ETFs by 5 basis points and on one fund, the Lyxor ETF MSCI Emerging Markets, by 10 basis points, from 0.65% to 0.55% a year, it is unclear how large an impact this will have.

Reuter said: “When providers change their prices, the difference is minimal. It is not something we see investors focus on. Instead we find investors in Europe focusing on the asset allocation and product quality.”



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Europe Blog

Wednesday, November 07, 2012 15:17 (CET)

Posted By Paul Amery

Paul Amery

Shifting BlackRock’s ETF platform from its dominant position in Europe will prove difficult for the firm’s rivals

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