Blackrock-owned iShares has aggressively cut charges on three of its sovereign bond ETFs amid mounting pressure from cheaper rivals, Portfolio Adviser has learned.
The $1.9trn (£1.5trn) global ETF business lowered fees between 60% and 65% on its UK Gilts and Index-Linked Gilts Ucits products as well as its £13bn Irish-domiciled US Treasury range.
| Fund name | Original OCF | New OCF |
| iShares Core UK Gilts Ucits ETF | 0.20 | 0.07 |
| iShares £ Index-Linked Gilts Ucits ETF | 0.25 | 0.10 |
| iShares $ Treasury Bond | 0.20 | 0.07 |
Source: iShares
Although the new fees have been updated on the iShares website as of yet the cuts have not been widely reported on.
Reactive pricing
7IM senior investment manager Peter Sleep notes iShares has 60% of the market share in the European fixed income ETF space but it has been under more pressure from rivals willing to undercut it on price.
Compared with other passive providers iShares has been far more “reactive” when it comes to fees, said AJ Bell fund manager Terry McGivern.
“This reactive approach to pricing is a continual issue with the iShares range, where the nature of their business model and the profitability they have grown accustomed to from it, sees them take a far slower approach to cutting fees on products and leads us to favour other providers, who are maybe more aggressive in cutting costs,” he said.
“Vanguard, for instance, don’t have the same reticence to cutting cost due to the their business model being more of a ‘not for profit’, whilst smaller players need to be aggressive on pricing to get market share.”
Before the fee reduction iShares Core UK Gilts ETF was between 8 and 13 basis points more expensive than similar products from Vanguard and Lyxor Asset Management.
It is now cheaper than Vanguard’s UK Gilt which has an OCF of 0.12% and is on a level playing field with the Lyxor Core FTSE Actuaries UK Gilts which has an OCF of 0.07%.
But a pair of ETFs from Invesco, the Invesco UK Gilt 1-5 Year and Invesco UK Gilts, which charge 0.06% are currently the cheapest on the market.
Higher-margin ETF fees untouched
A spokesperson from iShares said the fee changes impacted products that are “important portfolio building blocks”.
“Our role as the world’s leading ETF provider and partner to our clients is to equip investors with the best tools possible for building efficient and cost-effective portfolios,” they said. “We are focused on using the benefits of our scale to optimize the characteristics we know investors value when choosing ETFs – including liquidity, scale, tracking, breadth of exposure, brand and total expense ratio (TER).”
While iShares has been willing to make concessions on fees for its sovereign bond funds, the charges on many of its higher-margin income ETFs remain untouched.
The OCF on the iShares European Corporate Bond ETF, which clocks in at some €10.1bn assets, is stuck at 0.20%, while the iShares High Yield and EM debt products, which have $10bn (£8bn) and $30bn (£24bn) respectively, are priced between 0.45% and 0.75%.
By contrast iShares Core UK Gilt has circa £1.6bn in assets under management and the Index-Linked Gilt has around £903m.
However the US Treasuries range has $13bn (£10bn) in total assets.
On this point the spokesperson added: “We are constantly evaluating our fund range to respond to evolving investor needs, and our focus will remain on optimising the characteristics we know they value such as liquidity, scale, tracking, and breadth of exposure, brand and TER within our European range.”
