As more and more traditional fund firms are entering the ETF market and issuing new products, the market is driving down prices. Vanguard has fueled a price war in the United States by issuing 20 new ETFs undercutting Black Rock and others, Bloomberg reports today:
“Vanguard’s U.S. ETFs pulled in a net $25.6 billion this year through Sept. 30, 26 percent more than BlackRock and State Street combined, according to Chicago-based Morningstar Inc. Vanguard last month offered 20 new ETFs, taking on the bigger companies for the first time with funds that track Standard & Poor’s and Russell indexes, including the S&P 500 Index.(…) Fees charged by BlackRock and Boston-based State Street, which oversees $216 billion in ETFs, are on average about double those of Vanguard and Schwab of San Francisco.”
But competition drives also innovation. The latest thing being bullet bond ETFs, as read in today’s Wall Street Journal:
“One of the exchange-traded-fund industry’s latest innovations aims to answer a longstanding criticism of bond mutual funds: that these investments never mature and so investors can’t lock in attractive yields as they can with individual bonds. Two ETF providers, BlackRock Inc.’s iShares unit and Guggenheim Partners LLC, have begun offering “end-date” or “bullet” bond ETFs in the past year. The new funds hold a portfolio of bonds all maturing in the same year.”
This seems to me among the more sensible innovations in the ETF market. It’s reassuring to see that in some areas of the financial services world market forces actually do work.