Australian investors are benefiting from an intensification of the price war among ETF issuers, as two major rivals – BlackRock and Vanguard – lower fees in the same week.
The Australian ETF market is experiencing an escalation in price war behaviour.
The two asset managers cut the fees on their leading domestic Australian equity ETFs.
BlackRock made the first move when it trimmed the fee on its iShares Core S&P/ASX 200 ETF (IOZ AU) from 0.15% to 0.09%.
This ETF tracks the S&P/ASX 200 Index, the best-known benchmark for Australian equities performance. The market cap-weighted index consists of the 200 largest securities trading on the Australian Securities Exchange and represents around 82% of the country’s listed market cap.
Housing over AUD$1.3 billion in assets under management, the fund is BlackRock’s third-largest ETF listed in Australia after the AUD$3.1bn iShares S&P 500 ETF (IVV AU) and AUD$1.6bn iShares Global 100 ETF (IOO AU).
The fee reduction will save investors in the fund around AUD$780,000 in charges annually.
Arch rival Vanguard was quick to parry, however, reducing the cost of the AUD$3.7bn Vanguard Australia Shares ETF (VAS AU) from 0.14% to 0.10%. The lower management fee will take effect on1 July 2019.
The fund is linked to the S&P/ASX 300 Index which consists of all S&P/ASX 200 companies plus 100 smaller-cap companies that have market capitalizations above AUD$100 million. Its broader scope sees the index represents around 85% of Australia’s share market.
Existing investors in the fund will pay around AUD$1.48m less in annual management fees due to the lower price tag.
BlackRock and Vanguard’s actions will undoubtedly place pressure on State Street Global Advisors (SSGA). With a management fee of 0.19%, its SPDR S&P/ASX 200 Fund (STW AU) now looks unnecessarily expensive.
Cheaper than all three, however, is the BetaShares Australia 200 ETF (A200 AU), which charges annual fees of just 0.07%. The fund has grown to $500m in assets since its launch in May 2018, showing that the smaller providers can disrupt the market – a factor that has likely influenced the decision making behind recent price cuts by BlackRock and Vanguard.