State Street Cuts ETF Fees, Amping Up Wall Street’s Race to Zero

The race to the bottom continues as two of the largest ETF issuers are slicing what investors pay in the $6 trillion industry’s battle to manage the most cash.

Just a day after BlackRock Inc. cut fees on $7.6 billion of its style exchange-traded funds, competitor State Street Global Advisors slashed them on two of its bond funds.

Although the fight over fees in ETFs has raged for years, it’s rare for two powerhouses to make these kinds of moves in such rapid succession. That asset managers have to continually reduce what they charge their customers highlights how difficult it is to attract assets with more than 2,350 products trading in the U.S. -- especially for State Street, which has lost market share in every year since 2016.

“High yield has become the next battle in the decade-long fee war,” Todd Rosenbluth, director of ETF research for CFRA Research, said. “State Street has lagged behind iShares and DWS for more retail-oriented high-yield assets, but has lowered the bar and is better positioned to gather new money.”

State Street cut fees on the SPDR Portfolio Mortgage Backed Bond ETF (SPMB) to 0.04% from 0.06%, and lowered the SPDR Portfolio High Yield Bond ETF (SPHY) to 0.10% from 0.15%, according to a statement Wednesday. That makes SPHY cheaper than its larger peers, BlackRock’s iShares Broad USD High Yield Corporate Bond ETF (USHY) and DWS Group’s Xtrackers USD High Yield Corporate Bond ETF (HYLB), both of which charge 0.15%. And it appears to be a bid to boost SPHY’s assets, which currently sit at $288 million, compared with $7.5 billion for USHY and $6.5 billion for HYLB.

The move by State Street came after BlackRock earlier this week reduced fees on nine iShares Morningstar U.S. Equity Style Box ETFs to a range of 0.03% to 0.06%, down from 0.25% to 0.30%. BlackRock spokeswoman Soogyung Jordan said she didn’t know whether these cuts triggered State Street’s decision.

“We are always and continually reviewing our product offerings and look to be responsive to the needs of our investors,” she said in a telephone interview.