BlackRock caps fee on $10bn high-yield corporate bond ETF

BlackRock will cap the fee on its $10.3bn iShares Broad USD High Yield Corporate Bond ETF at 8 basis points, the firm disclosed on Tuesday.

BlackRock Fund Advisors, the investment adviser to the ETF, agreed to waive a portion of its management fee through February 28, 2025, the filing notes. For now, the fund will waive 14 bps, according to the filing.

The previous total annual operating expense did not exceed more than 15 bps, according to the ETF’s prospectus.

“For the fiscal years ended October 31, 2022, October 31, 2021, and October 31, 2020, BFA waived $5,407,157, $5,396,905 and $3,117,565 of its management fees, respectively,” the filing notes.

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Total management fees stand at 22 bps, the filing notes.

“These actions are part of our regular review of our pricing strategy to reflect continued growth in iShares ETFs and our ability to leverage our scale to benefit clients,” BlackRock said.

The ETF bled $277mn in net flows year to date through October 31, according to Morningstar Direct data.

However, the fund gained $226mn in net flows for the quarter ended October 31, Morningstar data shows.

“The impetus for the increased fee waiver is clear,” said Bryan Armour, director of passive strategies research for North America at Morningstar. “A fee skirmish broke out in high-yield index ETFs in July, when [Charles] Schwab entered the high-yield bond market at the same price as the lowest-cost high-yield bond ETF [State Street’s high-yield bond ETF at 10 bps].”

In response, Armour said, State Street dropped its fee to 5 bps and then Schwab slashed its fee to 3 bps in late September.

“So, iShares’ fee cut is coming in on the heels of increased price competition by State Street and Schwab, but they still have a higher fee than those competitors even with the increased fee waiver,” he said.

More than 600 ETFs, or about 18 per cent of all US ETFs, employ fee waivers, Armour said.

However, not all asset managers use fee waivers.

“Vanguard and Schwab currently don’t have any ETFs that use fee waivers, and State Street only has them on 1 per cent of their ETFs,” Armour said.

iShares’ US ETFs generated $47.9bn in net flows year to date through October 31, according to Morningstar.

Total US ETFs had more than $8bn in net flows for the quarter ended October 31.

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