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BlackRock Lowers Fees for ETFs, Schwab to Follow Suit?

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In an attempt to attract more customers and capitalize on the exchange-traded funds ("ETF") boom, BlackRock, Inc.BLK , which is the largest manager of ETFs through its iShares brand, announced a cut in fees on seven of its more than 700 ETFs. The cut marked a new level of low fees for investors in the funds, which track the stock market.

The company lowered the expense ratio on seven Core funds, which also included the $2.7 billion iShares Core S&P Total U.S. Stock Market ETF. The expense ratio of the fund was reduced to 0.03% from 0.07%. The ratio comes below the 0.05% charged by the $57 billion Vanguard Total Stock Market ETF.

Subsequent to the BlackRock announcement, another asset manager The Charles Schwab Corporation SCHW also declared its intention to equal the cut on its $4.9 billion Schwab U.S. Large-Cap ETF, which currently sports an expense ratio of 0.04%. However, the company did not give any time frame for the planned move. The news was first reported by the Wall Street Journal.

While Schwab and Vanguard have considerably grown their shares in the ETF market over the past several years, the firms that control 88% of the ETF market's assets include BlackRock, Vanguard and State Street Corporation STT .

BlackRock's iShares Core ETF lineup was launched in October 2012, which has grown to $160 billion in assets as of Sep 30, 2015, according to BlackRock. The fees reduction can prove to be a successful factor for these funds to gain further popularity.

Amy Schioldager, Global Head of Beta Strategies at BlackRock said, "Given today's changes, investors can create well-diversified portfolios with broad U.S. equity exposure, consisting entirely of iShares ETFs or BlackRock index mutual funds."

Though the fees cuts seem meagre, they mean millions in revenue for asset managers. BlackRock's cutback in fees could slice an estimated $1 million of management fees, which is amassed on the product each year. The reduction will equate to a 57% fall. However, such cost cutbacks can result in entry of new assets into funds, causing a rise in overall fees.

The increasing competition among the ETF offering companies have led to rising benefits for investors. The funds are providing investors with broader and more diversified exposure at competitive prices. The fees reduction move by BlackRock can prove to be a challenge for Vanguard, which has been consistently gaining market share.

Currently, BlackRock carries a Zacks Rank #3 (Hold). A better-ranked investment management firm is Woori Bank Co., Ltd. WF , which holds a Zacks Rank #2 (Buy).

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STATE ST CORP (STT): Free Stock Analysis Report

SCHWAB(CHAS) (SCHW): Free Stock Analysis Report

BLACKROCK INC (BLK): Free Stock Analysis Report

WOORI BANK (WF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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