In the aftermath of Wall Street's avarice leading up to and during the financial crisis, investors made it clear that they expect to pay as little as possible for the investments they demand. While some financial providers have answered that call with more attractive pricing, others have only made a half-hearted attempt to compete on cost.
Oh boy! 4% off!
According to reports, BlackRock's
As good as that sounds, though, the actual impact is pretty underwhelming. Morningstar says that with one exception, all of the fee reductions are less than five basis points (0.05 percentage points), with some funds seeing only a single basis-point reduction. Among the hottest ETFs, iShares MSCI Brazil ETF
Much ado about nothing
Sure, it's great that iShares is charging its shareholders a little less. But it's still missing the boat against its competitors, which are charging considerably lower fees in some cases. Vanguard Emerging Markets Stock ETF
Now granted, it only makes sense that iShares would want to cash in on its near-monopoly on single-country ETFs. Certainly other competitors, such as Van Eck's Market Vectors series, charge similar fees on their single-country funds.
But bragging about minor expense ratio drops just makes it clear that iShares doesn't really expect to have to compete on price. And that could prove to be a recipe for long-term disaster. Despite the fact that iShares and State Street
The ongoing battle
Other ETF providers are starting to join Vanguard on the low-cost bandwagon. Charles Schwab
Of course, annual expense ratios aren't the only costs of trading ETFs. One of the greatest strengths of iShares is that its funds are so widely followed that they tend to be much more liquid than some competing ETFs, narrowing the spreads between bid and ask prices and therefore making them more attractive to those who trade ETF shares actively.
But for most investors who don't expect to buy in and out of ETFs frequently, bid-ask spreads are a minor consideration compared to long-term costs. And with Schwab and Vanguard offering commission-free trades on their entire ETF lines -- something that iShares only does with a limited number of their funds via Fidelity and TD AMERITRADE -- being cost conscious is very much in vogue.
Make the right move
In the end, investors have to take care of themselves, and that means paying as little as you can for the investment vehicles you need. Fractions of a percentage point may not seem all that important when markets are jumping double-digit percentages every year, but over the long haul, they can make a substantial difference in how much money you end up with. Be vigilant and minimize investing costs, and you'll earn your reward down the line.
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