Olde Hornet
Well-Known Member
https://www.bloomberg.com/news/arti...ck-s-premium-funds-pay-the-bills?srnd=premium
It’s no secret low-cost ETFs are big business for BlackRock Inc.
Over the past decade, the money manager’s suite of iShares exchange-traded funds has become the most popular on the planet, amassing almost $2 trillion of client assets along the way.
Its behemoth iShares Core S&P 500 ETF charges a management fee of just 0.04 percent of assets per year, or a scant 40 cents per $1,000. You might wonder how BlackRock makes money charging so little. What’s rarely publicized is just how much of ETF profits—the single biggest source of BlackRock’s revenue—comes from its smaller, high-priced offerings.
BlackRock doesn’t disclose how much it earns from individual ETFs, but calculations by Bloomberg show that almost half the company’s ETF revenue comes from its premium-priced products, which are popular with hedge funds and other professional investors. It’s a stark contrast to its biggest rivals, such as Vanguard Group and State Street Corp., which depend primarily on attracting individuals to its low-fee ETFs.
At a time when the fund industry’s seemingly never-ending price war pushes ETF fees closer and closer to zero, relying on high-cost ETFs could be risky. For now, those high-margin ETFs provide a crucial buffer for BlackRock as the industry cannibalizes itself. But BlackRock has that much more to lose if investors abandon them for lower-cost alternatives. If it were to cut ETF fees to match Vanguard across the board, a back-of-the-envelope estimate suggests it could cost the firm upwards of $3 billion in annual revenue.
It’s no secret low-cost ETFs are big business for BlackRock Inc.
Over the past decade, the money manager’s suite of iShares exchange-traded funds has become the most popular on the planet, amassing almost $2 trillion of client assets along the way.
Its behemoth iShares Core S&P 500 ETF charges a management fee of just 0.04 percent of assets per year, or a scant 40 cents per $1,000. You might wonder how BlackRock makes money charging so little. What’s rarely publicized is just how much of ETF profits—the single biggest source of BlackRock’s revenue—comes from its smaller, high-priced offerings.
BlackRock doesn’t disclose how much it earns from individual ETFs, but calculations by Bloomberg show that almost half the company’s ETF revenue comes from its premium-priced products, which are popular with hedge funds and other professional investors. It’s a stark contrast to its biggest rivals, such as Vanguard Group and State Street Corp., which depend primarily on attracting individuals to its low-fee ETFs.
At a time when the fund industry’s seemingly never-ending price war pushes ETF fees closer and closer to zero, relying on high-cost ETFs could be risky. For now, those high-margin ETFs provide a crucial buffer for BlackRock as the industry cannibalizes itself. But BlackRock has that much more to lose if investors abandon them for lower-cost alternatives. If it were to cut ETF fees to match Vanguard across the board, a back-of-the-envelope estimate suggests it could cost the firm upwards of $3 billion in annual revenue.