BlackRock announced that is cutting its fees on its iShares Core range available to U.S. investors. Investors can gain broad market exposures for 4-14bp. This compares to 7-25bp for the iShares Core range available in the U.K.
A diversified multi-asset 70/30 ETF portfolio will cost U.S. investors some 8bp (that's 8 cents per $100), compared to 14bp for a similar strategy for U.K. investors. Might the U.K. follow suit? We'll see.
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 ("mutual funds, 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.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: 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. This blog reflects the views of the author and does not necessarily reflect the views of Elston Consulting, its clients or affiliates. For information and disclaimers, please see www.elstonconsulting.co.uk