Is the exchange-traded fund price war accelerating? The Financial Times reports that, according to data from XTF, the big three ETF providers -- BlackRock's iShares [profile], State Street [profile] and Vanguard [profile] -- have cut fees on a total of 75 funds so far in 2012, compared to 94 fee cuts across the entire ETF industry for all of 2011. They've raised fees on only two funds so far this year.

The big three ETF providers collectively manage $1.2 trillion in assets or 84 percent of the exchange-traded product assets.

“Our competitors may call this a price war, but we are simply passing on economies of scale. If others follow suit, the result is cheaper products for investors,” said John Woerth, a spokesman for Vanguard.

“Price can be an important differentiator, especially for attracting new money and some sponsors are lowering expense ratios to be competitive,” said Ogden Hammond, a McKinsey consultant who specializes in ETFs. “Its natural for a maturing industry to become more competitive and for margins in some segments to be squeezed.”

According to XTF, since 2010, Vanguard made one increase for every four cuts, BlackRock cut fees five times more than their price raises, while State street made eight times as many cuts as increases.

The article also offers data on the size of the entire ETF industry and notes that number one ETF provider iShares brought at least 27 percent of revenue last year at its parent, BlackRock. 

Edited by: HFD


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