Stiff competition for capital flows is turning out to be the order of the day in the Exchange Trade Fund market. Competition for investor’s capital in the $6 trillion market has edged higher in recent months, prompting some of the biggest funds to slash costs to industry lows.
ETF Fees Cut
BlackRock is the latest fund manager to try and make its ETFs competitive and attractive. The firm has slashed expense ratios on nine ETFs between 0.03% and 0.06%, down from an initial expense ratio of between 0.25% and 0.30%.
Similarly, the firm’s $258 billion iShares Core S&P 500 ETF will now come with a 0.03% expense ratio. The iShares Morning Growth ETF will come with a 0.04% expense ratio down from 0.25%. In addition to expense ratio cuts, most of the funds have undergone share splits.
The biggest exchange-traded fund issuer has been entangled in fierce competition for flows. Vanguard Group has been its biggest competition, having attracted the most ETF capital inflows last year for the first time since 2013.
Likewise, BlackRock’s decision to cut fees underscores its commitment to remain a market leader when it comes to ETF products. The hedge fund wants to remain competitive for cost-conscious buyers eyeing broad market exposure through ETFs.
First Trust Canada ETFs
BlackRock lowering its expense ratio does not come as a surprise given the increase in the number of ETF products all gunning for investor’s capital. First Trust Canada is the latest two launch two new actively managed ETFs on the NEO Exchange.
The new fixed income ETF and global equity ETF have begun trading under ticker symbols NEOFJFB and NEOFJFG, respectively. The First Trust JFL fixed income Core plus ETF provides investors with income and preserve capital by investing diversified portfolios of investment-grade corporate federal and municipal bonds. The First Trust JFL Global Equity ETF FJFG, on the other hand, is to offer investors capital appreciation by investing in securities of large multinational companies.
First Trust Limited has made a name for itself in providing investors a robust lineup of disruptive thematic-based ETFs focused on 5G technology stocks and green energy. It has also been disruptive in developing a diversified lineup of actively managed ETFs. The two new ETFs bring to 19 ETFs listed in Neo.
ESG Credit Market Impact
Amid the increased focus on environmental, social, and governance investment products, companies focused on securities that ESG funds would normally exclude continue to elicit strong interest. Tobacco, fossil fuel, and gaming companies are increasingly accessing credit markets even as the focus shifts towards ESG focused companies.
Even as ESG debt becomes increasingly lucrative, companies often focus on what people often consider as vices are increasingly accessing credit markets with ease and sometimes with lower funding costs. The trend is expected to continue as linking borrower’s debt to ESG is relatively new.
Companies in the so-called sinful categories don’t have to pay much to access debt as feared amid the ESG revolution. However, that could change as fund managers are being forced to comply with ESG-related investment strategies.