Vanguard Switches ETF Providers In Effort To Lower Fees; Blackrock And Schwab Scramble To Compete On Lower Fees

Wednesday, October 03, 2012 07:15
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Vanguard Switches ETF Providers In Effort To Lower Fees; Blackrock And Schwab Scramble To Compete On Lower Fees

Tags: ETFs | index funds | Vanguard

The fee war between exchange traded fund (ETFs) providers is heating up. Vanguard has chosen FTSE Group and The Center for Research in Securities Prices over MSCI Inc. as the new provide for 22 of its index funds and ETFs.

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Index licensing fees have increased over time as a component of the expense ratio. Fees are also coming into focus at Blackrock—the largest provider of ETFs—and Charles Schwab. They will also be cutting fees to compete with Vanguard.
 
Vanguard’s efforts to keep fees low has helped it attract $1 out of every $3 invested for the first three quarters of 2012.
 
The biggest change will be to Vanguard’s Emerging-Markets ETF, which has a 15% exposure to Korea.
 
FTSE considers Korea to be a developed country so the Vanguard ETF will be liquidating its Korea position and transitioning into positions in Brazil, Taiwan, and South Africa.
 
Rules for transitioning between capitalization sizes in domestic funds will be less stringent. For example, small-cap companies that are becoming mid-caps may remain in two different funds during the transition instead of being dropped right as they outgrow their small-cap status.
 
This along with the change in providers will help to maintain lower costs in both domestic and international funds.

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