What do the BlackRock fee cuts mean for the Favourite funds list?

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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

BlackRock is the largest asset manager in the world, with around $7tn in assets under management. The majority of this is in passive (also known as ‘tracker) funds – through its iShares brand.

In a passive fund, the manager aims to perform in line with an index – such as the FTSE 100 in the UK or S&P 500 in the US – by purchasing all the shares in the index, in the right weightings.

Over the last decade, passive investing has grown in popularity. In 2007, just 8% of fund investments were passive; a decade later, this increased to 20%. To put it into perspective, exchange-traded funds (ETFs), a type of passive fund, have investments totalling $5tn ($5,000,000,000,000) in 2019. With such a large amount invested, it's easy to understand why passive fund managers, such as BlackRock, Vanguard and State Street, are keen to capture as much market share as possible.

Simply put, the easiest way for passive fund managers to gain market share is by offering lower fees. This is because, unlike active funds – where higher fees can be justified by higher performance – passive investing is largely commoditised. If they’re managed effectively, all passive funds replicating the FTSE 100 will perform similarly.  

Because of the scale of BlackRock, it is often able to offer passive funds at a lower cost than many of its competitors. And earlier this week, they reduced their fees even further. This was in response to price cuts made recently by competitors: BlackRock want to ensure money won’t move away from their products into cheaper offerings elsewhere. Thanks to their huge scale, they’re able to cut prices without it affecting the fund’s management. This is one of the reasons why just under half of our tracker Favourite funds are from the iShares range.

How much have they cut their fees by?

BlackRock has cut fees on 12 of its passive funds. On average it has cut its fee by a third, restoring its position as one of the cheapest providers in the market.

Fund name Old OCF New OCF
iShares US Equity Index Fund (UK) 0.08 0.05
iShares Continental European Equity Index Fund (UK) 0.10 0.06
iShares UK Equity Index Fund (UK) 0.07 0.05
iShares Global Property Securities Equity Index Fund (UK) 0.22 0.18
iShares Emerging Markets Equity Index Fund (UK) 0.26 0.16
iShares Pacific ex-Japan Equity Index Fund (UK) 0.20 0.13
iShares Japan Equity Index Fund (UK) 0.16 0.08
iShares Corporate Bond Index Fund (UK) 0.17 0.12
iShares Overseas Government Bond Index Fund (UK) 0.16 0.11
iShares Overseas Corporate Bond Index Fund (UK) 0.16 0.11
iShares Index Linked Gilt Index Fund (UK) 0.16 0.11
iShares UK Gilts All Stocks Index Fund (UK)  0.16 0.11

What does this mean for me?

If you hold any of these funds, you’ll automatically benefit from the lower fees. BlackRock takes its fees directly from the fund, so they’ll now take the new lower amount. Three of the above funds are on the AJ Bell Favourite funds list:

Following these fee cuts, in some instances BlackRock funds are now significantly cheaper than our choice on the Favourite funds list. But as we believe other passive fund managers are likely to react to BlackRock’s fee cuts with cuts of their own, we won’t be making any changes to our list for now.

We’ll continue to review the passive markets, taking these lower fees into account when we make any future changes.

These articles are for information purposes only and are not a personal recommendation or advice.


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Written by:
Matt Brennan

Matt Brennan is Head of Investment Management at AJ Bell and is responsible for the day-to-day running of the AJ Bell funds. He has over six years’ experience in financial services, having previously worked at Brown Shipley as a Senior Fund Manager and Head of Fixed Income Research, with specific responsibility for managing a discretionary fixed income fund. He also formed part of a four-person fund management team that ran the company’s multi-asset funds. Matt graduated from the University of York with a first class Masters degree in Mathematics, and is a CFA Charter holder.