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ETF Competition Lowers Costs for Investors


As the exchange traded fund space fills out, competition for investor dollars is tight. Fund sponsors are partnering with brokerage platforms to offer commission-free trades, and a so-called fee war has helped slash expenses.

Two years ago, online brokerage platforms started waiving fees on ETF trades in an attempt to attract investors. Now, more ETF providers are seeing the benefits of increasing assets under management through commission-free ETFs. [Six Popular Commission-Free ETF Trading Platforms]

This year, Schwab expanded its OneSource program to include ETFs from States Street, PowerShares, Guggenheim, ETF Securities and U.S. Commodity Funds. Investors can browse through 105 commission-free options. [Schwab Unveils Game-Changing Commission-Free ETF Platform]

Following on Schwabs heels, Fidelity expanded its partnership with BlackRock, increasing its line of commission-free trades to 65 ETFs from 30, including the new iShares “Core” series. [Fidelity, iShares Expand ETF Partnership: What Does it Mean?]

Moreover, investors have benefited from lowered expense ratios on a range of popular ETF products, according to the American Association of Individual Investors.

Since April 2012, Vanguard has reduced expenses on 56 of its ETFs, including 41 during the 12-month period endned June 30. Not to be outdone, BlackRock introduced its iShares Core series, which covers specific “core” ETFs that come with low expense ratios.

Last month, State Street Global Advisors joined the brawl, launching the SPDR Russell 2000 ETF (TWOK) to compete with other existing Russell small-cap ETFs. Fund providers know that if they launch ETFs with strategies similar to existing products, they have to come out with lower fees to gain a competitive advantage. Additionally, SSgA came out and lowered expense ratios on three of its Russell index funds. [ETF Index Changes Show Methodology Matters]

Currently, two Charles Schwab ETFs linked to broad U.S. equities have the cheapest expense ratios at 0.04%.

While the fee war may have only reduced expenses a couple of basis points, the lower fees add up over time as compounding helps investors save thousands over time.

For more information on the ETF industry, ,visit our current affairs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.