BlackRock is the winner and loser in this bond ETF fee fight

BlackRock is the winner and loser in this bond ETF fee fight
Cheaper corporate bond exchange-traded fund sees big inflows, while a similar BlackRock fund with higher expenses sees outflows
OCT 01, 2018
The fee fight continues in ETF land. But now it's happening within fund firms themselves. BlackRock Inc.'s $2.2 billion iShares Broad USD Investment Grade Corporate Bond ETF (USIG) took in a record $624 million last Tuesday. It appears that one buyer executed four massive block trades in the exchange-traded fund, the largest being 5 million shares worth $267.5 million, according to Bloomberg data. Meanwhile, last Monday, BlackRock's $34 billion iShares iBoxx Investment Grade Corporate Bond ETF (LQD) saw outflows of more than $675 million, followed by another reduction of nearly $320 million last Tuesday. Investors have pulled $3.1 billion from the fund this year. USIG is the far cheaper ETF, carrying a fee of $6 for every $1,000 invested, compared with $15 charged by LQD. Tuesday's flows into USIG helped its market capitalization balloon by more than 40% overnight. "It's someone who likely has to maintain the allocation and is just shifting to the cheaper option," said Athanasios Psarofagis, an analyst with Bloomberg Intelligence. "It's not uncommon to see this shift for some of the iShares core ETFs." (More: Fixed-income ETFs ranked by second quarter performance) USIG is down 4.3% this year, while LQD has lost 5.4%. Both funds track indexes comprised of investment-grade corporate bonds, but their exposures are different. LQD has a bigger position in U.S. debt, particularly banks, while USIG has larger holdings in notes issued by oil and gas producers. Overall, investment-grade corporate bonds have lost about 2.3% in 2018. (More: Fidelity's zero-fee funds unleash the power of free)

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