The cost of investing in exchange traded funds is falling dramatically as two of the largest provide...
The cost of investing in exchange traded funds is falling dramatically as two of the largest providers, Barclays Global Investors and Merrill Lynch, cut their fees.
Barclays Global Investors, which distributes iShares, is lowering the annual management fee on its eight European sector funds from 0.5% to 0.35% from this week.
The move to reduce charges coincides with the changing of the benchmark on its eight European funds to track the new FTSE European rather than Bloomberg sectors. These new indices will comprise a narrower set of more liquid stocks, with no more than 30 in each index and are weighted by a free float market capitalisation.
John Demaine, director of iShares, said European sector iShares now include banks, consumer cyclicals, consumer non-cyclicals, media, oil and gas, pharmaceuticals and biotechnology, technology and utilities.
Most other iShares in BGI's family of 13 also have an annual fee of 0.35%. Among its most popular iShares are the FTSE 100 and S&P 500 shares, which also charge a 0.35% fee, and are in competition with mainstream tracker funds.
The other major ETF provider, Merrill Lynch, which calls its ETFs LDRs, has also imposed price cuts. The annual management charge of its Euro Stoxx 50 and Stoxx 50 LDRs has been reduced from 0.5% to 0.35%. LDRs are the most widely offered ETFs in Europe, being listed on seven European exchanges, most recently in Italy in September.
Exchange traded funds combine the characteristics of index tracking funds and exchange traded shares and enable investors to diversify their investment across a wide range of stocks in a single transaction. An important advantage is that, like equities, they can be bought or sold at any time during normal trading hours at the current cost, through a stockbroker.
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