IInvestors are now spoiled for choice when it comes to low-cost exchange-traded funds as the ETF industry engages in an increasingly aggressive fee war that has led costs increasingly close to zero.
US-listed ETFs that were once the cheapest on the market face even greater competition as more fund sponsors cut fees.
“The goalposts didn’t just move. They moved from one end of the pitch to the other,” Elisabeth Kashner, director of global fund analysis at FactSet, told the Financial Times.
The current trend shows continued fee compression in the ETF industry and increased competition to cut costs or risk bleeding assets to more aggressive rivals.
“In December 2017, the asset-weighted average expense ratio for ETFs that had gained market share over their direct competitors was 0.19%, while losers cost 0.26%. In December 2021, 0.19% was the price to pay for losers in market share funds now cost 0.16%,” Kashner said.
“Investors flocked to lower-cost options across most segments of the ETF landscape. As a result, asset-weighted expense ratios fell across all asset classes and strategies,” Kashner added. “Investor preference for the cheapest products has taken root.”
For example, Vanguard, a low-cost leader, saw greater popularity as many investors flocked to the fund sponsor’s cheap ETF offerings. Among the ten most popular ETFs of 2022 in terms of new feeds, Vanguard ETFs accounted for five.
Average fees around the world are trending lower, with the United States leading the way. According to data from FactSet, the average asset-weighted fee for fixed income ETFs in the United States has fallen from 15 basis points to 13 basis points since 2017.
More thematic, niche or alternative ETF strategies also saw their fees drop. Costs for alternative assets fell to 67 basis points from 89 basis points last year, and fees for leveraged or leveraged ETFs fell to 71 basis points from 102 basis points.
“Asset-weighted expense ratios have fallen across all asset classes and strategies. Regardless of the starting point, the destination is the same,” Kashner said. “There is no place to hide, regardless of asset class or strategy.”
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