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BlackRock, Vanguard, and Others in Race-to-the-Bottom ETF Price War


BlackRock has announced a series of expense ratio cuts in response to similar measures by its competitors.

MINYANVILLE ORIGINAL For investors, now is as a good a time as ever to invest in ETFs, at least in terms of fees paid.

Thanks to increased competition, ETF providers have been cutting expense ratios in their race-to-the-bottom pursuit of investors in a fast-growing sector of the $12 trillion mutual-fund industry.

The latest to install a series of fee cuts is BlackRock's (NYSE:BLK) iShares unit, which is slashing fees on four stock ETFs and two bond ETFs, starting today. For example, investors will now be charged just 0.07%, or $0.70 for every $1,000 invested, for owning the iShares Core S&P 500 ETF (NYSEARCA:IVV) and the iShares Core S&P Total US Stock Market ETF (formerly iShares S&P 1500 Index Fund) (NYSEAMEX:ISI). The expense ratios for the two in the past were 0.09% and 0.20% respectively. That makes the cost of owning the iShares Core S&P Total US Stock Market ETF comparable to that of owning the popular Vanguard Total Stock Market ETF (NYSEARCA:VTI), which has a 0.06% expense ratio.

Fees on the iShares Core S&P Mid-Cap ETF (NYSEARCA:IJH), the iShares Core Total US Bond Market ETF (formerly iShares Barclays Aggregate Bond Fund) (NYSEARCA:AGG) and the iShares Core Long-Term US Bond ETF (formerly iShares 10+ Year Government/Credit Bond Fund) (NYSEAMEX:GLJ) will also be cut.

With a newly reduced fee of 0.08%, AGG will be cheaper than a similar fund from Vanguard, the Vanguard Total Bond Market ETF (NYSEARCA:BND). Both AGG and BND are far cheaper than the PIMCO Total Return ETF (NYSEARCA:BOND). Both AGG and BND are passively-managed while the much-more expensive BOND is actively managed.

BlackRock's fee changes come on the heels of similar cuts at rivals Charles Schwab (NYSE:SCHW) and Vanguard. Last month, Charles Schwab slashed expense ratios between 15% and 60% on 15 ETFs. Investors will now pay only 0.04% for owning the Schwab US Broad Market ETF (NYSEARCA:SCHB), setting a new industry low, compared to the old ratio of 0.8%. Meanwhile, Vanguard Group has also slashed expenses for 40 of the firm's 64 ETFs over the past year, notes Businessweek.
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