ETF Prices: How Low Can They Go?

by InvestorPlace Staff | March 16, 2012 9:19 am

Exchange-traded fund pricing apparently is a race to the bottom.

In 2012 alone, the three biggest players in the ETF world — Blackrock (NYSE:BLK[1]), State Street (NYSE:STT[2]) and Vanguard — have cut the expense ratios on 17% of all existing ETFs, according to a Fox Business report[3]. The three companies are responsible for 31% of exchange-traded funds.

The expense ratio is what the firm charges for various expenses — such as fund manager’s pay, informational materials and other administrative costs — and is baked into the fund’s returns.

The price slashings come as these companies and others try to stand out amid a large and growing crowd of ETFs. As State Street reported earlier this month, exchange-traded fund assets in the U.S. alone have grown to an all-time high $1.18 trillion[4] across more than 1,200 funds — 74 of them added this year alone.

Vanguard, also known for its low-expense mutual funds, averages a mere 0.16% expense ratio across its ETFs. It dropped the Vanguard MSCI Emerging Markets (NYSE:VWO[5]) ETF to 0.2% from 0.22%, making it one of the cheapest ways to get into emerging-market stocks[6]. And State Street Global Advisors — sponsor of the United States’ oldest ETF, the SPDR S&P 500 ETF (NYSE:SPY[7]) — cut expense ratios on nine of its SPDR sector ETFs to one basis point lower than their Vanguard counterparts.

Meanwhile, BlackRock has spent this year issuing 35 new low-cost funds averaging 0.48% in expenses, according to the report.

However, the two cheapest ETFs are sponsored outside of the big three. FocusShares’ Focus Morningstar US Market Index ETF (NYSE:FMU[8]) and Focus Morningstar Large Cap Index ETF (NYSE:FLG[9]) can be had for a 0.05% song.

Check out InvestorPlace‘s ETF Investing section[10] for fund analysis and news.

The full Fox Business report can be viewed here.[11]

— Kyle Woodley,

  1. BLK:
  2. STT:
  3. Fox Business report:
  4. have grown to an all-time high $1.18 trillion:
  5. VWO:
  6. cheapest ways to get into emerging-market stocks:
  7. SPY:
  8. FMU:
  9. FLG:
  10. InvestorPlace‘s ETF Investing section:
  11. The full Fox Business report can be viewed here.:

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