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Friday, October 15, 2010

Bloomberg Talks of Vanguard's ETF Throwdown

News summary by MFWire's editors

Vanguard's [see profile], ETF pricing cuts gained more coverage, this time in a Bloomberg report.

The MFWire previously reported on Vanguard's .

Vanguard’s U.S. ETFs reportedly gained $25.6 billion this year through Sept. 30, 26 percent more than BlackRock's iShares [see profile] and State Street [see profile] combined, according to data from Morningstar. Vanguard last month offered 20 new ETFs with funds that track Standard & Poor’s and Russell indexes, including the S&P 500 Index.

By comparison, State Street and BlackRock dropped to a 70 percent combined share from 85 percent in 2005, as investors reportedly wamed to Vanguard's lower-fee funds, as well as those offered by Charles Schwab Corp. [see profile] and Pacific Investment Management Co. [see profile].

BlackRock's and State Street's fees are on average reportedly double those of Vanguard's and Schwab's. Specifically, the BlackRock iShares ETF that tracks the MSCI Emerging Markets Index reportedly has an expense ratio of 72 basis points while the Vanguard ETF that follows the same benchmark has an expense ratio of 27 bps.

However, both ETF giants are parrying Vanguard's blows with old-school tactics.

iShares managing director Noel Archard said in an interview that his firm is "absolutely" sticking to its strategy. “Our customers aren’t asking for lower expense ratios. They’re asking for more services.”

Tony Rochte, a senior managing director at State Street’s money-management unit, was quoted as saying that his customers see expense ratios as one of several key factors in assessing whether to invest in a particular ETF. According to Rochte, other factors such as liquidity, tracking error and tax-efficiency also come into play for investors. 

Edited by: Hung Tran


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