Bernstein Says BlackRock Needs to Cut Expense Ratios
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Thursday, September 06, 2012

Bernstein Says BlackRock Needs to Cut Expense Ratios

Luke Montgomery of Bernstein Research thinks slashing expense ratios for BlackRock's [profile] popular ETFs may be unavoidable, Barron's reports.

Bringing fees down would please institutional investors and may not be difficult to sell to shareholders, writes Brendan Conway for Barron's.

As the ETF market saw more players, BlackRock's shares began to lag behind peers like Legg Mason, Eaton Vance and Invesco.

Vanguard [profile], which has kept on cutting its ETF expense ratios, has taken advantage of the market. Vanguard's MSCI Emerging Markets ETF has $53 billion in AUM while iShares MSCI Emerging Markets Index Fund manages $34 billion. Vanguard's expense ration is 20 basis points while iShares' is 67 basis points.

Montgomery described Vanguard's entrenched popularity amongst smaller ETF holders as "Vanguarditis."

"[S]ome level of pricing concessions in certain products may be appropriate to maintain or attract institutional loyalty. And pricing concessions in certain products may also be desirable if the firm hopes to attract more retail investors to its ETFs, writes Montgomery.

Read more of the article on Conway's blog on the Barron's website.

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