According to Trevor Hunnicutt of Reuters Blackrock second quarter results failed to impress Wall Street as the world’s largest asset manager cut fees to lure a wave of investor cash into its exchange-traded funds. What is great for the retail buyer is not also great for the retail seller. Blackrock has assets under administration of $5.7 trillion which means it should make money, even if it did nothing. Thanks to Vanguard and other companies, fees on ETFs have steadily going down because they are not actively managed and the less the investor pays in fees, the more money he/she makes. Large fund managers have to continually lower their fees to be competitive, but they do not make as much money because the fees are lower. Ideally, with the lower fees, the asset manager has to sell more funds. In the case of Blackrock, the ETF fees were reduced from $27 for every $10,000 to $9.

For Blackrock the hope is technology will continue to drive down the costs of executing the trades (back office costs). Blackrock made $857 million in the quarter which is an increase of 8.6%.

Linking to dividend paying stocks, for investors paying for funds, they do not mind paying high fees as long as the performance of the fund is high performance; often times there is a mismatch high fees for low performance. Because the indexes are adjusted quarterly by the exchanges, the dogs are changed for the stars, the index tends to rise over the long term. Fees should be low and over the long term your index fund will rise.

There are more questions than answers, till the next time – to raising questions.