Average equity UCITS ETF charges fall 49% since 2013, ETF Express reports

Average ongoing charges on equity UCITS ETFs have fallen 49 per cent since 2013, and fixed-income ETF charges 32 per cent, ETF Express reported on Monday. Some mainstream equity exposures now cost as little as three basis points.

Vanguard cut ongoing costs on its FTSE All-World UCITS ETF again, to 0.14 per cent. A Vanguard spokesperson told ETF Express the fund "has seen strong investor demand and significant growth, allowing Vanguard to achieve greater scale."

Hector McNeil, co-founder and co-CEO of HANetf, calls the shorthand that follows from such numbers — that ETFs are cheap — "misleading". An ETF is a wrapper, he argues, and the wrapper does not tell you whether the strategy inside should cost three basis points or 80.

The most intense price competition, McNeil says, sits in exposures investors regard as largely interchangeable. For a new entrant in that crowd, price is the obvious lever; McNeil describes it as a difficult corner of the market to attack head-on.

Scale explains part of it: a tracker that has pulled in assets can spread costs and pass the result on. Broad beta is not closed to anyone else, McNeil argues. A large financial institution with an existing client base and distribution channels can use a white-label platform to manufacture the exposure itself, rather than hand the assets to an incumbent and retain less of the economics.

McNeil says the same instinct — compete on something other than the headline number — drove HANetf’s differentiation of The Royal Mint Responsibly Sourced Physical Gold ETC. The gold is held in Royal Mint vaults outside the banking system, which McNeil presents as a way to give investors greater control over the underlying holdings.