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Rating:It's Official: BlackRock Will Cut Some ETF Fees Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, September 10, 2012

It's Official: BlackRock Will Cut Some ETF Fees

Reported by Tommy Fernandez

It's official, BlackRock Inc. [Profile] will cut the fees on some of its iShares exchange-traded fund products in the fourth quarter, chief executive Laurence Fink said during an investor's conference today.

According to transcripts provided by BlackRock of Finks' comments during the Barclays' Global Financial Services Conference, Fink said that "As I discussed in my last earnings call, we expect to be announcing a whole strategy and how well we're addressing the fee issue related to these large liquid core types of the ETFs. And so we are going to be addressing that in the next quarter, probably early part of the fourth quarter, but most importantly where we're seeing huge opportunity is in the structuring of ETFs on behalf of our clients."

Later during his presentation, in response to a question about BlackRock pricing and margins, Fink responded "we are going to have reduce fees and reduce margins on those products. But in the other area, we still have increasing margins in some of our other ETF products. So, the key is about innovation. The key is making sure that we are building out more innovative products."

"The smaller and less liquid products we don't see any fee pressure worldwide and – but slowly, but surely, we are going to see a different mix and match. So, I am not here to suggest – we are going to be announcing a wholesale fee change on everything. We are going to be focusing on a number of products whereby the competition at lower fees is accelerating their sales numbers versus ours. And we are going to be addressing it on those few products, but it's not going to be broadly spread throughout our whole platform.

According to Reuters , BlackRock's $501 billion of iShares ETFs made up 40.6 percent of the $1.23 trillion U.S. ETF market as of August 31, down from 46.6 percent two years ago, according to IndexUniverse LLC, which tracks ETFs.

The move follows speculation today by such publications as Barron's that BlackRock would need to cut some fees due to price competition by the Vanguard Group.

Bloomberg reported that BlackRock, the world’s largest ETF provider, has lost market share as Vanguard has attracted investors. BlackRock’s U.S. market share in the ETF business fell 1.6 percentage points this year through July to about 41 percent, compared with an increase of 1.8 percentage points for Vanguard to 18 percent, according to data provided by State Street Global Advisors.

In response, Fink said during the Barclay's conference that "We expect to be announcing a whole strategy in how are we addressing the fee issue related to these large, liquid, core types of ETFs.”

Analyst Luke Montgomery of Bernstein Research wrote in a report last week that slashing expense ratios for popular ETFs may be unavoidable.


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