ETF investors are the big winners from a fee war

There’s been good news for Australian ETF investors, with three of the major ETF issuers reducing their fees.

There’s been good news for Australian ETF, with three of the major ETF issuers reducing their fees. This ‘fee war’ was something we flagged as possible in our recent review of the Best Australian ETFs.

BetaShares’ launch of a low-cost Australian shares ETF in 2018 put the other issuers on notice to review their own fees. Vanguard announced in July 2019 it has reduced its annual management fee on the Vanguard Australia Shares ETF (VAS) from 0.14% to 0.10%. With almost $3.7b in this ETF at the time of the announcement, investors will benefit from ~$1.5m of cost savings per year.

This includes the thousands of Stockspot clients who own this fund. We continue to recommend VAS to clients because of its large size, low cost, and broader exposure to more companies in the Australian market.

Blackrock has also reduced the fee on their indexed Australian shares ETF, the iShares Core S&P/ASX 200 ETF (IOZ) from 0.15% to 0.09%. IOZ had $1.3b at the time of the announcement in 2019, meaning this fee reduction will save investors $800,000 per year. 

Last and fashionably late to the party is State Street Global Advisers (SSGA), which in February 2020 announced its SPDR S&P/ASX 200 Fund (STW) ETF will have it’s fee reduced from 0.19% to 0.13%, effective from March 2020. With $3.6b at the time of the announcement, the fee reduction will save investors $2.2m per year.

CodeETF NameOld FeeNew FeeSavings
IOZiShares Core S&P/ASX 200 ETF0.15%0.09%0.06%
VASVanguard Australian Shares Index ETF0.14%0.10%0.04%
STWSPDR S&P/ASX 200 ETF 0.19%0.13%0.06%
A200BetaShares Australia 200 ETF0.07%0.07%
MVWVanEck Vectors Australian Equal Weight ETF0.35%0.35%

Blackrock have also reduced fees on their fixed income (i.e. bond) ETF range including the iShares Core Composite Bond ETF (ASX: IAF) from 0.20% to 0.15% in April 2020. IAF is the best bond ETF we use in our portfolios.

Investors moving to low cost indexers

Low cost index ETFs continue to attract the majority of investor money. In a couple of years the low-cost VAS has quickly caught up to the higher fee STW. The A200 ETF is also gaining traction.

The State Street owned SPDR S&P/ASX 200 ETF (STW) was forced to follow suit with the fee reduction to remain competetive, after leaving it’s fee unchanged for many years. STW saw large outflows moving into cheaper products.

Their late inaction has proved costly, as we discussed in our 2019 ETF Research, BetaShares knocked SPDR out of 3rd spot in the race for the largest ETF provider. STW was the ETF with the highest level of net outflows over the 12 months to March 2019, with investors pulling over $200m out of STW. 

Lower cost ETFs have provided better returns

As part of our 2019 ETF Research, we found the average ETF fee has actually increased over time as more expensive ETFs are coming to market. However, it’s the lower cost index ETFs that continue to deliver better performance.

Index-based ETFs investing in Australian shares returned 24.7% in 2019 on average compared to active ETFs which returned just 18.5%. This is why we continue to advise clients to stick with the boring but brilliant low-cost indexes rather than be tempted by higher-cost alternatives.

Lower ETF fees benefit you

As the ETF market continues to grow, ETF issuers will have more opportunity to pass on lower costs to their investors. This has happened in other parts of the world like the US where some S&P 500 funds now charge just 0.02% p.a. Costs are one of the few things you can control as an investor. Lower ETF fees means more money in your back pocket each year.

Find out how Stockspot makes it easy to grow your wealth through ETFs without hassle or cost.

Investment Manager

Marc has previously worked for Morgan Stanley, AMP and KPMG. He holds a Bachelor of Business (Finance/Accounting) from the University of Technology Sydney (UTS), and has completed his Chartered Financial Analyst (CFA) Level 1.

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