The first free ETF is on its way.
Social Finance is helping start two new ETFs that won’t charge a management fee, according to regulatory filings. The funds, which plan to waive charges for at least the first year, will focus on U.S. stocks.
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Fee wars are great for clients, but don’t judge a fund solely on its expense ratio.
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The Fidelity Zero Total Market Index Fund attracted $753.5 million through Aug. 31, while the Fidelity Zero International Index Fund gathered $234.2 million, according to Fidelity’s website.
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Let’s face it, portfolio management will never be free.
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With more than 97% of cash flowing to ETFs going to those that charge $2 or less for every $1,000 invested, issuers are under pressure to keep costs to a minimum. SoFi is a new contender in the fee war, after Fidelity Investments made waves when it started the first free mutual funds last year and saw assets in those products quickly grow to $1 billion. Free funds are loss leaders for issuers, which are betting customers attracted by the low-cost offerings will eventually buy more expensive funds or services.
Investors currently pay 30 cents for every $1,000 invested in the cheapest ETFs from BlackRock, State Street and Charles Schwab. Together these three issuers control 60% of the $3.7 trillion market in U.S. ETFs. Vanguard, which runs funds that charge 40 cents, manages another 26%.
Health category funds dominated the list, making up for well over half of the group’s assets.
While the cheapest funds all track broad indexes of U.S. stocks weighted by market capitalization, SoFi’s offerings come with a twist. The SoFi 500 ETF (SFY) and the SoFi Next 500 ETF (SFYX) will be weighted using a proprietary mix of market cap and fundamental factors. SoFi provided “support in developing the methodology used by the index to determine the securities included,” the filing said.
The funds are free until at least March 27 2020, according to the filing, which lists the waived management fee as 0.19%.
Although the funds are branded by SoFi, the ETFs are being issued through a trust. Toroso Investments is the investment adviser responsible for the two funds, and has hired Exponential ETFs to run them day to day. Solactive created the benchmarks.
