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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