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First BlackRock Then Schwab: ETF Price War Intensifies

After BlackRock Inc.'s BLK move to reduce expense fees for more than a dozen of its ETFs, The Charles Schwab Corporation SCHW is also treading the same path. However, this is not the first time that the company has opted for fee cuts. It is one of the major investment firms that initiated this price competition.

It is speculated that Schwab's moves, which is currently the fifth biggest provider of U.S. ETFs, will intensify the price war further and prompt other major players in this space to take similar steps. Some believe that this may also lead to lower fees for some ETFs close to zero (read: Buy These ETFs as BlackRock Cuts Fees ).

Schwab Cuts Fees

This leading investment management company opted to reduce expense ratios for five of its ETFs. It has reduced the fees by 1 basis point for each of the funds. These funds include four equity ETFs and one bond ETF. Here are the 5 ETFs that witnessed fees cuts:

Schwab US Small-Cap ETFSCHA - from 0.07% to 0.06%

Schwab US Mid-Cap ETFSCHM - from 0.07% to 0.06%

Schwab International Equity ETFSCHF - from 0.08% to 0.07%

Schwab Emerging Markets Equity ETFSCHE - from 0.14% to 0.13%

Schwab US Aggregate Bond ETFSCHZ - from 0.05% to 0.04%

Following the fees cut Marie Chandoha, CEO of Charles Schwab Investment Management, said: "The appeal of index investing continues to accelerate. When individuals invest their hard-earned money, they are increasingly searching for low-cost, transparent, enduring products. It's our mission to deliver on that."

Though the desire to capture a larger market share is speculated to be the main reason behind these moves, the new set of "fiduciary rules" by the Labor Department is also a major factor behind the fees cut. The rule asks advisors to give precedence to their client's interest over their own, which is leading them to offer low-cost products (read: Looking for Inexpensive Dividend ETFs? Here They Are ).

Is a New Era of Zero Fees Approaching?

The way in which the fees cut war is intensifying, some believe that major players in the ETF domain may soon introduce products with zero expense ratios. Lee Kranefuss, one of the founders of iShares, indicated that zero expense funds are quite possible. He said: "A certain amount of this stuff is marketing, and a certain amount is related to the economies of scale… It would be a great headline for someone to offer a fund with no fees, but you can't have whole families at zero because then no one could make money" (read: How Retirement Saving Rules are Making ETFs More Attractive )

Meanwhile, it is quite evident that low expense choices have attracted significant attention from investors, which led these funds to attract a notable portion of investor assets. According to a Bloomberg report, Vanguard Group and Fidelity Investments, which slashed fees for a significant number of funds this year, took in around $162 billion of investor assets this year. Moreover, the world's largest ETF provider, BlackRock's move to reduce fees for 15 of its iShares ETFs is also speculated to boost the company's assets under management. These may encourage the firms to reduce fees for their funds further, which in turn may lead to an era of no expense funds (read: Fidelity Slashes Fees for 11 Sector ETFs ).

Bottom Line

Investors are likely to be the foremost gainers from this intensifying price war. Fee cuts will help investors to get exposed to high quality portfolios at expense costs of less than 10 basis points, which is a huge plus for them. Meanwhile, the growing popularity of passive investing is also poised to boost the already expanding ETF industry further, as most of the products in this space look to replicate their benchmark indexes. Thus, these factors are speculated to have a positive impact on the overall ETF industry.

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SCHWAB-EMG MKT (SCHE): ETF Research Reports

SCHWAB-US MC (SCHM): ETF Research Reports

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SCHWAB-INTL EQ (SCHF): ETF Research Reports

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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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