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The Boston Globe

Business

Price war spurs BlackRock to trim iShare fees

BlackRock Inc.’s iShares unit is reducing the investment fees charged at six of its largest exchange-traded funds as the biggest ETF provider expands a fee-cutting war that’s benefiting cost-conscious investors.

The recent expense cuts by iShares, Vanguard, Charles Schwab, and other ETF sponsors present a further challenge for traditional mutual funds, which are attracting new cash from investors at a far slower rate than ETFs.

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BlackRock on Monday also announced that it is launching four new iShares ETFs and revamping some of its existing lineup with a goal of making ETFs more appealing to long-term, buy-and-hold investors.

Beginning Wednesday, BlackRock’s two lowest-cost stock ETFs will charge expense ratios of 0.07 percent, or 70 cents a year for every $1,000 invested. The largest of those two ETFs, the nearly $32 billion iShares Core S&P 500, had previously charged 0.09 percent, while iShares Core S&P Total US Stock Market charged 0.20 percent. Those are the ongoing charges to cover fund operations, expressed as a percentage of assets.

New fee levels at the other four iShares ETFs that are cutting expenses range from 0.08 percent for an ETF investing in a diversified portfolio of bonds to 0.18 percent for an ETF investing in stocks listed in emerging markets countries.

The cuts follow a move last month by Charles Schwab Corp., a much smaller player in ETFs, to reduce expense ratios at its lowest-cost stock ETFs to 0.04 percent, lowest in the industry. Vanguard Group, best known for its index mutual funds, has cut expenses at 40 of its 64 ETFs over the past 12 months.

IShares was the market leader with a nearly 44 percent share of US ETF assets managed as of August, according to the research firm ETFGI. Combined, iShares, State Street, and Vanguard commanded 84 percent of the market, with Vanguard posting the fastest growth rate recently.

Index mutual funds have long been the first choice for anyone looking to invest on the cheap, but they’re now being undercut by the lowest-cost ETFs. Both seek to match rather than beat the market by investing in a basket of stocks or bonds. Fees are typically low because investors aren’t paying managers to pick investments.

A distinct feature is that ETFs can be traded throughout the day like stocks, unlike mutual funds that are priced only at the close of daily trading. Also, with ETFs, average investors pay the same expenses as institutional investors, unlike with mutual funds.

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