iShares Core Allocation ETFs - Fee Reduction
-
- Posts: 262
- Joined: Wed Mar 18, 2020 6:33 pm
iShares Core Allocation ETFs - Fee Reduction
I've long been intrigued by asset allocation ETFs and have a token amount in the iShares AOR.
I was checking out the iShares page for them this morning and noticed the ER had been reduced to 21 basis points and 15 after the fee waivers.
Haven't seen any discussion of that here, so I thought I would see what everyone else thinks? This gets them closer to the VG Lifestrategy funds with the built in benefits of ETFs.
Seems like there's no reason these fees can't reduce further. Will more people invest in these as the fees become more competitive?
I was checking out the iShares page for them this morning and noticed the ER had been reduced to 21 basis points and 15 after the fee waivers.
Haven't seen any discussion of that here, so I thought I would see what everyone else thinks? This gets them closer to the VG Lifestrategy funds with the built in benefits of ETFs.
Seems like there's no reason these fees can't reduce further. Will more people invest in these as the fees become more competitive?
Last edited by BackToSchoolDad on Sat Oct 23, 2021 10:22 am, edited 1 time in total.
Re: iShares Core Allocation ETFs - Fee Reduction
What is the benefit of these over the VG Life Strategy?BackToSchoolDad wrote: ↑Sat Oct 23, 2021 9:53 am I've long been intrigued by asset allocation ETFs and have a token amount in the iShares AOR.
I was checking out the iShares page for them this morning and noticed the ER had been reduced to 20 basis points and 15 after the fee waivers.
Haven't seen any discussion of that here, so I thought I would see what everyone else thinks? This gets them closer to the VG Lifestrategy funds with the built in benefits of ETFs.
Seems like there's no reason these fees can't reduce further. Will more people invest in these as the fees become more competitive?
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
-
- Posts: 262
- Joined: Wed Mar 18, 2020 6:33 pm
- whodidntante
- Posts: 13114
- Joined: Thu Jan 21, 2016 10:11 pm
- Location: outside the echo chamber
Re: iShares Core Allocation ETFs - Fee Reduction
But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy?
- jeffyscott
- Posts: 13486
- Joined: Tue Feb 27, 2007 8:12 am
Re: iShares Core Allocation ETFs - Fee Reduction
30/70 available in a single, AOK, fund
I think it's that there would be no transaction fee or commission for those who have accounts where they would have to pay a fee to buy lifestrategy funds. There's no reason for me to use them, but it's good that they decided to make the fees competitive for those who do.
Re: iShares Core Allocation ETFs - Fee Reduction
+1, also glad to see the fee reduction in general.jeffyscott wrote: ↑Sat Oct 23, 2021 10:23 am30/70 available in a single, AOK, fund
I think it's that there would be no transaction fee or commission for those who have accounts where they would have to pay a fee to buy lifestrategy funds. There's no reason for me to use them, but it's good that they decided to make the fees competitive for those who do.
Note: Vanguard offers a fixed 30/70 allocation not in a Life Strategy fund but with their Vanguard Target Retirement Income Fund VTINX.
-
- Posts: 1244
- Joined: Thu Dec 29, 2016 3:59 pm
Re: iShares Core Allocation ETFs - Fee Reduction
This is great news. I have always found these funds intriguing but have been mildly turned off by the slightly high expense ratios. I think not too long ago they had ER’s of +/- 25 bps. A reduction to 15 bps makes them much more reasonably priced. And as far as I know, these are currently the only asset allocation ETF’s on the market.
I currently don’t have any reason to hold these funds, but I could see myself using them at some point in the future.
I currently don’t have any reason to hold these funds, but I could see myself using them at some point in the future.
Re: iShares Core Allocation ETFs - Fee Reduction
whodidntante wrote: ↑Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy?
The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
100% US TSM
-
- Posts: 262
- Joined: Wed Mar 18, 2020 6:33 pm
Re: iShares Core Allocation ETFs - Fee Reduction
Even without the waiver, they've already lowered the fee, but I'm more concerned about them changing the underlying holdings long term than I am about the fees going up.
- jeffyscott
- Posts: 13486
- Joined: Tue Feb 27, 2007 8:12 am
Re: iShares Core Allocation ETFs - Fee Reduction
Having a contractual waiver for 5 years is pretty good, actually. Though not sure what it means when it can be terminated at any time that Shares Trust and BlackRock Fund Advisors agree to do so?BackToSchoolDad wrote: ↑Sat Oct 23, 2021 11:36 amEven without the waiver, they've already lowered the fee, but I'm more concerned about them changing the underlying holdings long term than I am about the fees going up.
From the prospectus:
BFA, the investment adviser to the Fund, has contractually agreed to waive a portion of its management fees in an amount equal to the Acquired Fund Fees and Expenses, if any, attributable to investments by the Fund in other series of the Trust and iShares, Inc. through November 30, 2026. The contractual waiver may be terminated prior to November 30, 2026 only upon written agreement of the Trust and BFA.
Even at 0.2%, it might be better than paying transaction fees to buy life strategy funds, if that is the alternative.
Another option, though not for taxable, would be to do something like buy whatever NTF target date fund is closest to the desired allocation and then trade back to that allocation every 5 years.
-
- Posts: 9479
- Joined: Sun Oct 08, 2017 7:16 pm
Re: iShares Core Allocation ETFs - Fee Reduction
I know Vanguard has changed the underlying holdings of their allocation funds. Has BlackRock done the same?BackToSchoolDad wrote: ↑Sat Oct 23, 2021 11:36 amEven without the waiver, they've already lowered the fee, but I'm more concerned about them changing the underlying holdings long term than I am about the fees going up.
-
- Posts: 262
- Joined: Wed Mar 18, 2020 6:33 pm
Re: iShares Core Allocation ETFs - Fee Reduction
They did once to simplify the holdings, which created some capital gains distributions, the only time the funds have distributed gains I believe.UpperNwGuy wrote: ↑Sat Oct 23, 2021 1:55 pm I know Vanguard has changed the underlying holdings of their allocation funds. Has BlackRock done the same?
-
- Posts: 9479
- Joined: Sun Oct 08, 2017 7:16 pm
Re: iShares Core Allocation ETFs - Fee Reduction
Vanguard changed the ratio of US to international stocks. Still later they added international bonds.BackToSchoolDad wrote: ↑Sat Oct 23, 2021 2:02 pmThey did once to simplify the holdings, which created some capital gains distributions, the only time the funds have distributed gains I believe.UpperNwGuy wrote: ↑Sat Oct 23, 2021 1:55 pm I know Vanguard has changed the underlying holdings of their allocation funds. Has BlackRock done the same?
-
- Posts: 262
- Joined: Wed Mar 18, 2020 6:33 pm
Re: iShares Core Allocation ETFs - Fee Reduction
That's true, I was referring to the iShares ETFs. I believe they've maintained the same international equity and bond weighting since the fund's inception.UpperNwGuy wrote: ↑Sat Oct 23, 2021 2:59 pm Vanguard changed the ratio of US to international stocks. Still later they added international bonds.
- anon_investor
- Posts: 15122
- Joined: Mon Jun 03, 2019 1:43 pm
Re: iShares Core Allocation ETFs - Fee Reduction
Vanguard supposedly is lowering the ER for their target date funds to 0.08% sometime in 2022.sycamore wrote: ↑Sat Oct 23, 2021 11:13 am+1, also glad to see the fee reduction in general.jeffyscott wrote: ↑Sat Oct 23, 2021 10:23 am30/70 available in a single, AOK, fund
I think it's that there would be no transaction fee or commission for those who have accounts where they would have to pay a fee to buy lifestrategy funds. There's no reason for me to use them, but it's good that they decided to make the fees competitive for those who do.
Note: Vanguard offers a fixed 30/70 allocation not in a Life Strategy fund but with their Vanguard Target Retirement Income Fund VTINX.
iShares balanced funds got cheaper!
[Merged into existing discussion -- moderator oldcomputerguy]
I was always huge fun of balanced funds, especially ETF balanced funds such as AOK, AOM, AOR and AOA. These are roughly 20/80, 40/60, 60/40 and 80/20 balanced funds. Their expense ratio was always a turn off but to my surprise they have become much more competitive. They are now 15bp down from 25bp. I love it! Even better this represents trend of iShares consistently dropping their ER, which makes them much more trustworthy in the long term for those who want to use these in taxable account.
I was always huge fun of balanced funds, especially ETF balanced funds such as AOK, AOM, AOR and AOA. These are roughly 20/80, 40/60, 60/40 and 80/20 balanced funds. Their expense ratio was always a turn off but to my surprise they have become much more competitive. They are now 15bp down from 25bp. I love it! Even better this represents trend of iShares consistently dropping their ER, which makes them much more trustworthy in the long term for those who want to use these in taxable account.
Re: iShares Core Allocation ETFs - Fee Reduction
Is there something specific about the ETF wrapper that makes these blackrock allocation funds more tax efficient than vanguard life strategy mutual funds when rebalancing asset classes? I get the taxable account advantage of ETF in-kind redemptions when comparing, say, a momentum ETF to a mutual fund with the same strategy. But I don’t understand the advantage when rebalancing; winning stock positions would have to be sold to buy more bonds, for example. Please enlighten me as it seems using an ETF structure could be a big advantage.
-
- Posts: 15363
- Joined: Fri Apr 10, 2015 12:29 am
Re: iShares Core Allocation ETFs - Fee Reduction
Fee waivers are just what they are committing to legally. It does not mean that fees will go up in 2026. They likely will be as low or lower then.6NDone wrote: ↑Sat Oct 23, 2021 11:25 amwhodidntante wrote: ↑Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy? :twisted:
The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
-
- Posts: 197
- Joined: Sun Jul 12, 2020 8:13 pm
Re: iShares Core Allocation ETFs - Fee Reduction
I used to hold AOA (80/20), and have given thought to returning to it for simplicity and automatic rebalancing.
But I don't get why it (and AOR=60/40) both underperform a 70/30 mix of ITOT and IUSB, and the Vanguard Balanced Index.
https://www.portfoliovisualizer.com/bac ... tion4_3=30
Is this underperformance the price for simplicity? I switched from AOA because of the expense ratio at the time (I think it was 35 bp), and that would have some effect, but I think there must be more going on as well. What am I missing?
But I don't get why it (and AOR=60/40) both underperform a 70/30 mix of ITOT and IUSB, and the Vanguard Balanced Index.
https://www.portfoliovisualizer.com/bac ... tion4_3=30
Is this underperformance the price for simplicity? I switched from AOA because of the expense ratio at the time (I think it was 35 bp), and that would have some effect, but I think there must be more going on as well. What am I missing?
Re: iShares Core Allocation ETFs - Fee Reduction
Well for one, AOA/AOR is market weighted US/International and ITOT/IUSB and VBINX is 100% US portfolio. Take a look at the holdings of AOR. https://www.ishares.com/us/products/239 ... f#holdingsUncle Morris wrote: ↑Sat Nov 27, 2021 9:13 pm I used to hold AOA (80/20), and have given thought to returning to it for simplicity and automatic rebalancing.
But I don't get why it (and AOR=60/40) both underperform a 70/30 mix of ITOT and IUSB, and the Vanguard Balanced Index.
Is this underperformance the price for simplicity? I switched from AOA because of the expense ratio at the time (I think it was 35 bp), and that would have some effect, but I think there must be more going on as well. What am I missing?
AOA/AOR/AOM/AOK are closer to Vanguard LifeStrategy funds which have a mix of US and International.
-
- Posts: 197
- Joined: Sun Jul 12, 2020 8:13 pm
Re: iShares Core Allocation ETFs - Fee Reduction
Ah, that could explain it. Would that cover most or all of the gap?isira wrote: ↑Sat Nov 27, 2021 11:06 pm
Well for one, AOA/AOR is market weighted US/International and ITOT/IUSB and VBINX is 100% US portfolio. Take a look at the holdings of AOR. https://www.ishares.com/us/products/239 ... f#holdings
AOA/AOR/AOM/AOK are closer to Vanguard LifeStrategy funds which have a mix of US and International.
Re: iShares Core Allocation ETFs - Fee Reduction
Yes. International stocks have significantly underperformed US stocks for a decade.Uncle Morris wrote: ↑Sat Nov 27, 2021 11:12 pmAh, that could explain it. Would that cover most or all of the gap?isira wrote: ↑Sat Nov 27, 2021 11:06 pm
Well for one, AOA/AOR is market weighted US/International and ITOT/IUSB and VBINX is 100% US portfolio. Take a look at the holdings of AOR. https://www.ishares.com/us/products/239 ... f#holdings
AOA/AOR/AOM/AOK are closer to Vanguard LifeStrategy funds which have a mix of US and International.
Re: iShares Core Allocation ETFs - Fee Reduction
Maybe. Or it does indeed go up in 2026. Nobody knows until 2026. As it is written today, you have no reasonable expectation of the fee remaining fixed beyond 2026.Northern Flicker wrote: ↑Sat Nov 27, 2021 5:22 pmFee waivers are just what they are committing to legally. It does not mean that fees will go up in 2026. They likely will be as low or lower then.6NDone wrote: ↑Sat Oct 23, 2021 11:25 amwhodidntante wrote: ↑Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy?
The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
100% US TSM
-
- Posts: 262
- Joined: Wed Mar 18, 2020 6:33 pm
Re: iShares Core Allocation ETFs - Fee Reduction
I think the ETF wrapper allows them to avoid any capital gains distributions. The VG Lifestrategy funds regularly distribute gains, whereas the iShares ETFs only did once when they simplified the international holdings.BF3000 wrote: ↑Sat Nov 27, 2021 5:18 pm Is there something specific about the ETF wrapper that makes these blackrock allocation funds more tax efficient than vanguard life strategy mutual funds when rebalancing asset classes? I get the taxable account advantage of ETF in-kind redemptions when comparing, say, a momentum ETF to a mutual fund with the same strategy. But I don’t understand the advantage when rebalancing; winning stock positions would have to be sold to buy more bonds, for example. Please enlighten me as it seems using an ETF structure could be a big advantage.
-
- Posts: 15363
- Joined: Fri Apr 10, 2015 12:29 am
Re: iShares Core Allocation ETFs - Fee Reduction
I have a reasonable expectation that it won't go up or go up by much based on the track record of fee waiver usage. iShares is projecting that the fee waiver will attract enough assets for the low fee to be self-sustaining.6NDone wrote: ↑Sun Nov 28, 2021 7:24 amMaybe. Or it does indeed go up in 2026. Nobody knows until 2026. As it is written today, you have no reasonable expectation of the fee remaining fixed beyond 2026.Northern Flicker wrote: ↑Sat Nov 27, 2021 5:22 pmFee waivers are just what they are committing to legally. It does not mean that fees will go up in 2026. They likely will be as low or lower then.6NDone wrote: ↑Sat Oct 23, 2021 11:25 amwhodidntante wrote: ↑Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy? :twisted:
The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
Fund ERs are projections of costs, not legally binding without a contractual fee waiver. What reasonable expectation is there that your favorite total market index fund will have fees in line with projected ER?
-
- Posts: 197
- Joined: Sun Jul 12, 2020 8:13 pm
Re: iShares Core Allocation ETFs - Fee Reduction
Thank you, isira and 000 for reminding me about the international component in these funds.
Now a question about the fees themselves.
Imagine AOA (at 15 bps) vs a three-fund portfolio of 50% ITOT (3 bps), 25% IXUS (9 bps) and 25% IUSB (6bps).
Yes, I know AOA has other small components, like ex-US bonds, but these are the main ingredients. Am I right in calculating the weighted average of the expenses for this three-fund portfolio at 7 bps? (Really, not a math major!) And if so, is AOA worth it at 15 bps with automatic rebalancing, elimination of behavioral errors, etc.?
Now a question about the fees themselves.
Imagine AOA (at 15 bps) vs a three-fund portfolio of 50% ITOT (3 bps), 25% IXUS (9 bps) and 25% IUSB (6bps).
Yes, I know AOA has other small components, like ex-US bonds, but these are the main ingredients. Am I right in calculating the weighted average of the expenses for this three-fund portfolio at 7 bps? (Really, not a math major!) And if so, is AOA worth it at 15 bps with automatic rebalancing, elimination of behavioral errors, etc.?
Re: iShares Core Allocation ETFs - Fee Reduction
I got 5.25bp == 0.50 * 3 + 0.25 * 9 + 0.25 * 6Uncle Morris wrote: ↑Thu Dec 02, 2021 7:46 pm Thank you, isira and 000 for reminding me about the international component in these funds.
Now a question about the fees themselves.
Imagine AOA (at 15 bps) vs a three-fund portfolio of 50% ITOT (3 bps), 25% IXUS (9 bps) and 25% IUSB (6bps).
Yes, I know AOA has other small components, like ex-US bonds, but these are the main ingredients. Am I right in calculating the weighted average of the expenses for this three-fund portfolio at 7 bps? (Really, not a math major!)
Probably, assuming a non taxable (IRA, etc) account. Historically there hasn't been much rebalancing bonus but it would be present in a sideways market. Potential behavioral errors are probably the bigger reason to hold the fund. Many investors (including me) struggle to stare at the losers in their holdings. This together with other performance chasers cheering their holdings leads to temptation to performance chase, which actually can work well for a while as long as momentum holds up, but eventually is a losing strategy.And if so, is AOA worth it at 15 bps with automatic rebalancing, elimination of behavioral errors, etc.?
I wouldn't hold any balanced fund in taxable but it's actually possible if they do it right that a balanced ETF of ETFs could be very tax efficient and provide tax efficient rebalancing versus separate holdings but I'm not sure if that is the case for this fund.
Another thing I noticed while researching these iShares allocation ETFs is they seem to be underweight mid and small caps versus the US total market.
And of course like most balanced funds there are only nominal bonds no TIPS.
-
- Posts: 1279
- Joined: Sun Jan 12, 2020 8:44 am
Re: iShares Core Allocation ETFs - Fee Reduction
AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.
VSMGX has one distribution every year.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
-
- Posts: 485
- Joined: Tue Jul 16, 2019 6:00 pm
Re: iShares Core Allocation ETFs - Fee Reduction
Heartbeat trades provide a significant advantage for ETFs.invest2bfree wrote: ↑Fri Dec 03, 2021 11:41 am
AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.
VSMGX has one distribution every year.
Re: iShares Core Allocation ETFs - Fee Reduction
It looks like you hold AOR and might know the answer to this question. Does the following accurately represent the annual cost of AOR in a taxable account?invest2bfree wrote: ↑Fri Dec 03, 2021 11:41 am AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.
VSMGX has one distribution every year.
It looks like it has around a 2% dividend yield. Of this, around 50% is qualified and taxed as long term capital gains, and the other 50% is taxed as ordinary income (federal and state for both).
So for someone in the 24% federal and 5% state ordinary and 15%/5% LTCG brackets, they'd accrue (1% x 0.29) = 0.29% in income tax costs and (1% x 0.2) = 0.2% LTCG costs for a total of 0.49% annual tax drag.
-
- Posts: 1279
- Joined: Sun Jan 12, 2020 8:44 am
Re: iShares Core Allocation ETFs - Fee Reduction
How is this different than VT\BND 60\40withrye wrote: ↑Fri Dec 03, 2021 11:59 amIt looks like you hold AOR and might know the answer to this question. Does the following accurately represent the annual cost of AOR in a taxable account?invest2bfree wrote: ↑Fri Dec 03, 2021 11:41 am AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.
VSMGX has one distribution every year.
It looks like it has around a 2% dividend yield. Of this, around 50% is qualified and taxed as long term capital gains, and the other 50% is taxed as ordinary income (federal and state for both).
So for someone in the 24% federal and 5% state ordinary and 15%/5% LTCG brackets, they'd accrue (1% x 0.29) = 0.29% in income tax costs and (1% x 0.2) = 0.2% LTCG costs for a total of 0.49% annual tax drag.
I save the rebalancing portion for that extra fee, I get stress free rebalancing.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
Re: iShares Core Allocation ETFs - Fee Reduction
I haven't looked at the numbers for an 60/40 VT/BNDW portfolio. I agree that getting rebalancing and behavioral protection from a single fund is ideal.invest2bfree wrote: ↑Fri Dec 03, 2021 2:57 pmHow is this different than VT\BND 60\40withrye wrote: ↑Fri Dec 03, 2021 11:59 amIt looks like you hold AOR and might know the answer to this question. Does the following accurately represent the annual cost of AOR in a taxable account?invest2bfree wrote: ↑Fri Dec 03, 2021 11:41 am AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.
VSMGX has one distribution every year.
It looks like it has around a 2% dividend yield. Of this, around 50% is qualified and taxed as long term capital gains, and the other 50% is taxed as ordinary income (federal and state for both).
So for someone in the 24% federal and 5% state ordinary and 15%/5% LTCG brackets, they'd accrue (1% x 0.29) = 0.29% in income tax costs and (1% x 0.2) = 0.2% LTCG costs for a total of 0.49% annual tax drag.
I save the rebalancing portion for that extra fee, I get stress free rebalancing.
I wasn't criticizing the 0.49% tax drag, I was asking the literal question of whether I had logic/math correct on the calculation method.
-
- Posts: 569
- Joined: Mon May 18, 2015 4:42 pm
Re: iShares Core Allocation ETFs - Fee Reduction
Would this be a good reason to choose AOR over VSMGX in taxable?invest2bfree wrote: ↑Fri Dec 03, 2021 11:41 am
AOR does not have any capital gains distribution for the last 3 years, last one was in 2017.
VSMGX has one distribution every year.
Re: iShares Core Allocation ETFs - Fee Reduction
It’s basically unheard of for a major ETF provider to allow the waiver to expire without permanently reducing the fee to match.6NDone wrote: ↑Sat Oct 23, 2021 11:25 amwhodidntante wrote: ↑Sat Oct 23, 2021 10:16 am But I learned here on Bogleheads that everyone except Vanguard is trying to trick us with low expenses, and will surely raise fees after we buy?
The iShares fee waiver is only until 2026, so these “low” fees they are offering are indeed kind of a trick especially if someone holds them in a taxable account.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: iShares Core Allocation ETFs - Fee Reduction
Yes.BogleBuddy12 wrote: ↑Mon Apr 18, 2022 10:01 am Would this be a good reason to choose AOR over VSMGX in taxable?