Fund manager BlackRock has slashed the fees on its Australian-offered unlisted index funds to a flat 20 basis points a year.
Previously, fees on BlackRock’s Indexed Australian Equity, Indexed International Equity, Indexed Hedged International Equity, Indexed Australian Listed Property, Indexed Australian Bond and Global Bond Index products ranged from 0.26 per cent to 0.35 per cent.
BlackRock Australia chief executive Damien Frawley said the company aimed to provide investors transparent, straightforward access to the world’s diverse asset markets in cost-effective ways.
The reductions also demonstrated the benefits of the company’s global scale, but there were no immediate plans to make further cuts, Frawley said.
The cuts make BlackRock’s index funds more competitive than rival Vanguard’s offerings to the financial planning market.
Vanguard’s Australian and international shares unlisted index products have an annual fee of 0.34 per cent and 0.36 per cent, respectively.
Its Australian government bond and Australian fixed interest index funds both charge 0.29 per cent.
“We will review prices and management fees in the future as the business builds scale, which is what Vanguard has done in the United States over its 30-odd years, so people should expect that Vanguard’s offerings will be competitive on both performance and cost,” Vanguard principal of corporate affairs and market development Robin Bowerman said.
Standard & Poor’s Fund Services (S&P) said its ratings on the range of BlackRock index funds would be unaffected by the decision to lower management fees.
“Fees are a key detractor from returns and BlackRock’s move to reduce its fees across the index strategies is viewed as positive for investors,” S&P said.
When compared to exchange-traded funds (ETF), the cut to the BlackRock Indexed Australian Equity Fund’s fee from 0.31 per cent made it cheaper than State Street Global Advisors’ (SSgA) SPDR S&P/ASX 200’s 0.29 per cent charge, but not as cheap as the 15-basis-point fee on Vanguard’s Australian Shares Index ETF, according to Morningstar.
SSgA Australia senior managing director Rob Goodlad said the group’s SPDR ETFs were priced appropriately and offered good value for money compared with managed funds and other ETFs.
“When comparing different ETF products, we recommend investors examine the total cost incurred. This includes both the management fee and the cost of the trade,” Goodlad said.
“There can be sizeable bid/ offer spreads on some ETFs that significantly increase the cost to the investor.
“It is important to factor in this extra cost along with fund liquidity, tracking error and manager experience when comparing products.”
Zenith Investment Partners director David Wright said there was no doubt funds management fees were under pressure.
“I would expect that obviously the direct competitors on the index front are going to have to come to the party to at least some degree to compete with BlackRock’s initiative on the index funds,” Wright said.
He said flows were heading to either index funds or true active strategies, while managers with low tracking error would be pressured.
