The ETF fee war shows no sign of abating. On the contrary, fee cuts have become part and parcel of life in ETF-land. Europe still lags behind the US when it comes to aggressive price-cutting. On this side of the Atlantic, we have yet to see zero-fee funds, let alone funds that actually pay investors, albeit temporarily, for the honour of holding them. Still, it’s clear that the only direction for ETF fees in Europe is south.
Investor interest in passive investment continues to grow at a healthy clip across the globe, and investors in ETFs are leading the charge into passive funds. This is particularly the case in the US, where ETFs have become akin to a default investment option.
In the UK and mainland Europe, the trend is also positive. Flows into ETFs in the first four months of 2019 totalled €30 billion (£26.5 billion). The value of assets invested in ETFs in Europe is nearing €800 billion (£710 billion), up from €200 billion (£175 billion) at the beginning of the decade.
The growth of the exchange traded fund market is relentless. There are already close to 2,300 products on sale to UK investors, which provide all sorts of market exposures. And the number of ETFs on offer is set to increase, as both long-established players and asset managers looking to enter the ETF space fight for a slice of the pie.
Few can dispute the benefits – chief among them low cost – that ETFs bring to investors. However, product proliferation is making the task of ETF selection rather daunting.
The importance of fund fees can never be over-emphasised. They erode returns over the long term and we have little option but to pay them, irrespective of performance.
ETFs help protect against inflation by providing cheap and easy access to inflation-linked government bonds.