Читать книгу The Institutional ETF Toolbox - Balchunas Eric - Страница 9

ETFs are cheap. The asset-weighted average fee is 0.30 percent, which is less than half the cost as the asset-weighted average active mutual fund fee of 0.66 percent. And when you look at the top 20 largest ETFs – where a lot of the institutional money gravitates – the average fee is 0.19 percent, as seen in Table 1.1.

Table 1.1 Fees for the Top 20 Largest ETFs

Source: Bloomberg

And the good news is costs keep coming down. Some call it a fee war, but I call it “fee innovation.” After all, it is a technological marvel that issuers can offer these products at such low costs. At this point you can get a deep and diverse all-ETF portfolio for a blended fee of about 0.08 percent.

When the Schwab U.S. Broad Market ETF (SCHB) cut its expense ratio in 2013 from 0.06 percent to 0.04 percent, it took cheap to a whole other level. Since then, it cut it to 0.03 percent along with the iShares Core S&P Total U.S. Stock Market ETF (ITOT) SCHB and ITOT hold over 2,000 large-, mid- and small-cap stocks, that comes out to about 700 stocks per basis point in fees. SCHB and ITOT are leading what many are calling a “race to the bottom.” Some of the leaders in this race to the bottom can be seen in Table 1.2.

Table 1.2 A Race to the Bottom in ETF Fees

Source: Bloomberg

And the reason I listed this as the first advantage is that investment costs are one of the most important variables you can control. Performance is fickle, but costs keep coming every day, rain or shine.

When it comes to the fee war, low-cost king Vanguard in particular should be given most of the credit. When they enter a category with a new ETF, it is like Wal-Mart coming to town. They cause a gnashing of teeth from the other issuers, who typically respond by lowering their fees as well. This “Vanguard Effect” is evidenced in the fact that in categories where there is no Vanguard ETF, such as micro-caps or junk bonds, the cheapest ETF is 3 to 6 times more expensive than categories Vanguard has an ETF in. In other words, the fee war is more about the fear of Vanguard than anything else. In the end, though, the investor is the ultimate winner in all of this.

For investors used to buying pricey mutual funds, ETFs’ low cost is a godsend. But for massive institutions with loads of money, ETFs can actually be expensive compared to passive separately managed accounts (SMAs). They can get an SMA that gives them index exposure for next to nothing and have it custom-made for their needs. It is the equivalent of getting a tailored suit for $10.

“If I’m a large institution, I can go direct to a service provider and say, ‘I’m going to dump $10 billion on you and you’re going to give me [S&P 500 exposure] for one basis point.’ People are going to whine and complain, but guess what happens? The manager is going to say, ‘Yes, sir, we’re going to do it for one basis point.’”

Wesley Gray, Alpha Architect

And for many large institutions, every basis point translates into a lot of money. In the case above, let’s say the institution paid one basis point for the SMA instead of 0.03 percent for SCHB or ITOT, the cheapest broad-market ETFs in the world. Those two basis points equal $2 million a year. That amount could be several fireman pensions that are now funded. This is why the very largest institutions negotiate over every basis point, and even dirt-cheap ETFs lose if fees are the only criteria.

Like mutual funds, SMAs get more expensive the less you can pony up. So it isn’t a black-and-white issue, but certainly at the larger institutional fund levels, they can be a cheaper option.

However, cost isn’t the only consideration for an institution, and that brings us to our next advantage.