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Global ETF Fee War Heightens With Negative Fee ETF Filed

Sanghamitra Saha

The battle for low-cost ETFs suddenly intensified globally from last month. The race has heated up in the United States in recent years. Now Europe’s biggest money manager has also joined the bandwagon to offer investors the cheapest exchange-traded funds around.

Fee-cut Developments in the United States

In late February, first, Social Finance Inc., an online lender also known as SoFi, made headlines by proposing two ETFs that waived off managed fees for at least the first year of operations (read: Zero-Fee ETFs to Hit the Market Finally?).

Soon after, Vanguard, which is already known as a low-cost issuer, cut fees on 10 of its exchange-traded funds. Then J.P. Morgan launched the JPMorgan BetaBuilders U.S. Equity ETF (BBUS), which offers exposure to large-and-mid cap U.S. equities, with a fee of 0.02%  (read: Vanguard Intensifies ETF Fee War Again).

J.P. Morgan intends to make the broad U.S. stock market fund cheaper than that of Vanguard, Schwab and BlackRock’s iShares. Currently, the lowest expense ratio charged by issuers like Charles Schwab Corp. BlackRock Inc. and State Street Corp. is 0.03%. These funds are Schwab U.S. Broad Market ETF SCHB, Schwab U.S. Large-Cap ETF SCHX, iShares Core S&P Total U.S. Stock Market ETF ITOT, SPDR Portfolio Large Cap ETF SPLG and SPDR Portfolio Total Stock Market ETF SPTM. Together these three issuers make up about 60% of the $3.7 trillion market in U.S. ETFs.

As many as 51 Vanguard ETFs now charge 0.10% or less.Vanguard Group, which offers its cheapest ETF Vanguard Total Stock Market ETF VTI at 0.04% holds another 26% of the market share (read: Expenses Matter: Dive into 7 Low Cost ETFs).

Forget Zero or Close-to-Zero, Negative Fees ETF Filed

Then comes a negative-fee ETF.Salt Financial’s new ETF,namely Salt Low truBeta US Market Fund LSLT, plans to pay 0.05% of assets to people to invest , till April 2020 or till the fund crosses the $100 million level, whichever comes earlier. After that threshold, the fund will charge 29 bps in fees. The fundhouse already has a product in circulation called Salt High truBeta US Market ETF SLT. The 10-month old fund has already about $10.6 million in its asset base.

Investors should note that Salt Financials’ new ETF will track an index of its own, and “self-indexing can save fund issuers money,” which in turn allowed it to go for a negative fee fund.  

Such a move was inevitable if we go by the analysis of Todd Rosenbluth, head of ETF and mutual fund research at CFRA. He believes that 'If you're going to crash an ETF party dominated by a handful of firms you need to make a splash.” Offering zero or negative fee ETFs in the initial days may be that unique tool to attract a great deal of attention by the small ETF issuers. Otherwise, it is tough to make a place for itself in a place that has been dominated by biggies like BlackRock, Vanguard, State Street and Charles Schwab.

Fee-Cut Wave Hits Foreign Shores

Not only the United States, Europe’s biggest money manager has also followed suit. Amundi, Europe’s largest $1.6 trillion fund manager, has launched a low-cost range of ETFs with an annual charge of 5 basis points.

The annual charge of 5 basis points is pretty low against an average of 22 basis points (AUM weighted) across Amundi’s existing range of more than 120 ETFs. However, one existing product — an ETF with DAX exposure — has ongoing charges as low as 10 points, per an article published on funds-europe.com. Europe’s ETF market is gradually verging on the United States. Citigroup Inc. expects it to almost triple to $2.2 trillion by 2022, hinting at further fee war across the pond.

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Vanguard Total Stock Market ETF (VTI): ETF Research Reports
 
Schwab U.S. Broad Market ETF (SCHB): ETF Research Reports
 
iShares Core S&P Total U.S. Stock Market ETF (ITOT): ETF Research Reports
 
Salt High truBeta US Market ETF (SLT): ETF Research Reports
 
Schwab U.S. Large-Cap ETF (SCHX): ETF Research Reports
 
SPDR Portfolio Large Cap ETF (SPLG): ETF Research Reports
 
SPDR Portfolio Total Stock Market ETF (SPTM): ETF Research Reports
 
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