BlackRock (BLK) strengthened its core lineup of ETFs by repositioning six of its existing ETFs and launching four new ones. The 10 ETFs cover three major asset classes, feature aggressive pricing, and constitute the new “iShares Core” class within the iShares brand. This move essentially eliminates the pricing differences between the major ETFs from iShares, Vanguard, and Schwab. The most significant difference between these three families now comes down to indexing. The new iShares Core ETFs track indexes very familiar to US investors, namely S&P indexes for domestic equities and MSCI indexes for international stocks.
The four new iShares Core ETFs launched on October 22, along with the underlying index, expense ratio, and link to overview page:
- iShares Core MSCI Total International Stock ETF (IXUS) will track the MSCI ACWI ex-USA Investable Market Index with a 0.16% expense ratio
- iShares Core MSCI EAFE ETF (IEFA) will track the MSCI EAFE Investable Market Index with a 0.14% expense ratio
- iShares Core MSCI Emerging Markets ETF (IEMG) will track the MSCI Emerging Markets Investable Market Index with a 0.18% expense ratio
- iShares Core Short-Term Bond ETF (ISTB) will track the Barclays U.S. Government/Credit 1-5 Year Bond Index with a 0.12% expense ratio
Six repositioned iShares Core ETFs (effective October 17) with expense ratios and links to overview pages:
- iShares Core S&P Total U.S. Stock Market ETF (ITOT) 0.07%, formerly the iShares S&P 1500 Index Fund (ISI)
- iShares Core S&P 500 ETF (IVV) 0.07%, formerly the iShares S&P 500 Index Fund (IVV)
- iShares Core S&P Mid-Cap ETF (IJH) 0.15%, formerly the iShares S&P MidCap 400 Index Fund (IJH)
- iShares Core S&P Small-Cap ETF (IJR) 0.16%, formerly the iShares S&P SmallCap 600 Index Fund (IJR)
- iShares Core Total U.S. Bond Market ETF (AGG) 0.08%, formerly the iShares Barclays Aggregate Bond Fund (AGG)
- iShares Core Long-Term U.S. Bond ETF (ILTB) 0.12%, formerly the iShares 10+ Year Government/Credit Bond Fund (GLJ)
BlackRock provides additional information and resources including:
- Strengthen Your Core With iShares ETFs (pdf)
- A Closer Look At iShares Core (pdf)
- Fact sheet and prospectus for each ETF is available at the overview links above
Analysis/Opinion: Mission accomplished: The ETF pricing war is over. Vanguard, Schwab, and iShares have secured victory for ETF investors. Even though the last shot has not been fired, once expense ratios drop to 0.10%, reducing them further results in no discernible difference to investors. At this point in the maturation of the ETF industry, I believe it is no longer possible for an indexed ETF firm to compete on price alone. However, it is still possible to lose on price. Therefore, SPDRs, PowerShares, and other contenders will need to step up to the price challenge or hone their marketing on being non-core ETF providers.
At expense levels of 0.10%, other factors become more important. Factors such as indexing methodology, transaction costs, distribution policies, and other items not found in the expense ratio. The most significant difference among the price leaders comes down to indexing. As stated previously, the new iShares Core ETFs track S&P and MSCI indexes. Vanguard is in the midst of an Index provider shuffle, and Schwab uses Dow Jones and FTSE indexes.
The four new ETFs listed above may appear to be duplicates of existing iShares ETFs, suggesting the older ones could have been redefined instead of launching new funds. However, the new ETFs are tracking different indexes than the existing products with the new ETFs using Investable Market Index (“IMI”) versions.
For example, the new IXUS tracks the MSCI ACWI ex-USA Investable Market Index of 6,136 stocks whereas the 4-year old iShares MSCI ACWI ex-US (ACWX) tracks the MSCI All Country World Index ex-USA, which contains just 1,113 stocks. The IMI indexes include small cap stocks and attempt to capture 99% of a given investment universe. The non-IMI versions only cover about 85% of a given market. Additional details can be found in Why Investable Market Indices (pdf).
The choice is obvious to me when investing new money – the new Core IMI ETFs provide broader coverage and are less expensive. Current shareholders of the existing ETFs (ACWX, EFA, and EEM) have other factors to consider before switching. They must include tax consequences and transaction costs in their decision making process.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.