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Exchange traded fund providers are in a fee war, slashing expense ratios in an effort to gain market share. The three biggest providers, by assets, are leading this battle - BlackRock, State Street and Vanguard.

"ETF companies have been lowering fees pretty aggressively this year because the market is reaching saturation," says Gregory Spear, President of Spear Capital Management. "While the overall number of funds is still growing, there are nevertheless a lot of funds that just can't attract enough liquidity to stay viable."

The lower ETF fees are actually raising demand for these funds, evidenced by the slurry of new product debuts. Since the start of 2012, about 74 new ETFs have come to market with an average expense ratio of 0.61%, reports Seana Smith for Fox Business. Currently, there are about 1,435 ETFs trading, according to XTF Research.

The competition is tightest among the three largest fund providers, by assets under management. Together, BlackRock, State Street and Vanguard account for about 83% of the total ETF market capitalization, or 31% of ETFs, reports Smith.

Critics argue that lower fees are absolutely not relevant to ETF selection. In fact, expenses come after the track record of a fund and the future performance of the ETF.

"Far more important is the investment potential of the stocks in the fund, which far too often people seem to ignore," Michael Krause, President of Alta Vista Research said.

Nevertheless, providers are marketing their funds according to what they believe will attract more assets. Here is a rundown of what to expect:

  • BlackRock: The provider has 268 ETFs in their iShares suite, with $503.02 billion in assets under management. Since the start of 2012, the provider has launched 35 new ETFs with an average expense of 0.48%.
  • StateStreet: The provider cut expenses of 9 of their sector SPDR ETFs in 2012. They undercut Vanguard by 1 basis point on similar funds, to 0.18%.
  • Vanguard: The low-price leader of all providers, Vanguard has the lowest average for ETF expenses at 0.16%. In February, the provider lowered expenses on six ETFs.

Tisha Guerrero contributed to this article.

Source: ETF Fees: How Low Can They Go?