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More for less: Stateside ETFs have just got cheaper


BlackRock announced today that is cutting its fees on its iShares Core (US) range.  Investors can gain broad market exposures for 4-14bp.  This compares to 7-25bp for the iShares Core (UK) range.
A diversified multi-asset 70/30 ETF portfolio will cost US investors can 8bp (that’s 8 cents per $100), compared to 14bp for a similar strategy for UK investors. Might the UK follow suit? We’ll see.

Big dreams
The cuddly  caption announcing the move says “Smaller Fees means Bigger Dreams”, which is warm-hearted.  But it’s also sort of fair.  Today’s retail investor has more access to breadth and depth of international markets than our parents ever dreamed of (if they ever dreamed of that sort of thing).

What does this mean, apart from being cheaper?
Well firstly, Moore’s law applies to ETF pricing & capacity as much as it does to semiconductors.  That’s not  new or surprising.  But the sustained deflationary pressure on fund fees is forcing the convergence of institutional and retail investment offers.  This will create pressures on asset managers that do not adapt.

Adapt to what?
The quest for elusive alpha from security selection looks like the right way of solving the wrong puzzle.
The puzzle to solve is how to design asset allocation strategies to help investors achieve their desired or required outcome.  Put differently, investment houses need to offer solutions (or “dreams”?), not products (“funds, OEICs, ETFs”).

Who are the winners?
Market access has basically become commoditised, so the only value in the value chain is in distribution (having customers), and solution design (giving them what they want).
Asset managers and financial adviser that embrace this new reality should flourish. Those that linger on in yesteryear’s product based world will gradually lose momentum.

NOTICES: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.  I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.

This article has been written for a US and UK audience.  Tickers are shown for corresponding and/or similar ETFs prefixed by the relevant exchange code, e.g. “NYSEARCA:” (NYSE Arca Exchange) for US readers; “LON:” (London Stock Exchange) for UK readers.  For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.  For more information see www.elstonconsulting.co.uk Photo credit: coinquest.com Chart & Table credit: N/A

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