iShares, the world's largest ETF provider, has revamped the way
it goes about reporting expense ratios on its website for 42
in what appears to be an effort to provide investors with a
more-up-to-date fee than the one that appears in each of the fund's
The iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM),
which until Monday was listed on the company's website as having an
expense ratio of 0.67 percent, today shows two separate expense
ratios:0.69 percent and 0.66 percent. EEM is just one of at least
42 iShares funds now presenting expense ratios this way.
The asterisks attached to the reported figures explain that the
first number reflects fees as of Aug. 31, 2012-the end of the
funds' fiscal years-while the second is a snapshot of what EEM cost
on Dec. 31, 2012. The difference reflects an increase in fund
assets in the last four months of 2012 that pushed costs down for
iShares' move follows headlines it made on Dec. 31 after it
submitted updated paperwork to regulators that included higher fees
on 40 ETFs, including EEM. All those funds-save for one-are the
focus of the change in reporting by iShares. The higher fees in the
prospectuses reflected prices as of Aug. 31, 2012-the end of the
fiscal year for the ETFs, and, as is the case for EEM, the lower
fees as of Dec. 31 reflect asset gains.
Our reporting on that caused a bit of a stir at the time, and
the takeaway is twofold:First it's clear that fund sponsors
care a lot about how their prices are perceived by an increasingly
demanding investing public; and secondly, there's a lot more than
meets the eye when it comes to understanding how much a given fund
The move doesn't appear to have been required by regulators and,
as best we can tell right now, iShares seems to be the only fund
sponsor that is taking this dual-disclosure approach to reporting
expense ratios on ETFs.
The San Francisco-based iShares told IndexUniverse the changes,
which seem to be centered on the funds detailed in the recent
prospectuses, apply to as many as 105 out of the firm's 280
Fruits Of The Fee War
The new approach comes at a time when investor scrutiny over ETF
fees is on the rise, and many fund providers find themselves caught
up in a so-called fee war as they vie for investor dollars.
Companies like Vanguard, Charles Schwab and iShares itself made
headlines in the past year by reducing fees on several funds.
While small fee differences clearly
make a huge difference to returns over the arc of time, having
bragging rights about low fees is something investors respond to
and that fund sponsors strive for.
'This all wouldn't even be a story if it weren't for all the
focus on fees in the past year,' Rick Ferri, head of Michigan-based
Portfolio Solutions said in a recent interview about all the talk
surrounding the iShares funds.
As noted, the news about the updated iShares prospectuses
detailing higher fees, as reported by IndexUniverse, caused a stir
in the ETF market, because everyone has become accustomed to seeing
fund fees drop, not rise.
At the time, iShares argued that the latest round of expense
ratios were stale at best because they reflected averaged numbers
good as of Aug. 31. The implication was that given the rise in
assets funds like EEM have seen since then, fees were already much
lower than what the latest figure in the legally mandated
prospectus update portrayed.
Regulators require ETF providers to update their figures once a
year at the end of the fiscal year for a given portfolio-Aug. 31 in
the case of the iShares' funds in question. Fund companies have 120
days to file such updated paperwork.
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