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The Race to Zero Fee ETFs Is Finally Here

Max Chen

This article was originally published on ETFTrends.com.

The ETF fee war that has pushed costs closer to zero has finally made the last step as the Bank of New York Mellon readies ETFs with no annual fees that track widely observed market indices.

Todd Rosenbluth, director of ETF and mutual fund research at CFRA, in a Twitter post pointed out that BNY Mellon has filled for a slew of ETF strategies, including:

Among the new ETFs waiting for final approval, the BNY Mellon US Large Cap Core Equity ETF and BNY Mellon Core Bond ETF both come with a zero expense ratio or no annual fees. The other ETFs come with expense ratios ranging from 0.4% to 0.22%.

"Unlike SoFi that went to zero, these have no waivers and are backed by a large [institutional] player with Pershing base," Rosenbluth said in a tweet.

Rosenbluth was referring to the SoFi Select 500 ETF (SFY) and the SoFi Next 500 ETF (SFYX), which have fee waivers in place that lower total fund expenses to zero through at least June 30, 2020.

"It seems like the 'race to zero' isn't just applying to interest rates. This move from Bank of New York is significant, because previous 'zero-fee' approaches either had captive audiences - for example, the Fidelity index mutual funds - or had a clear ulterior motive to drive attention to related products, as was the case with SoFi," Dave Nadig, Chief Investment Officer and Director of Research at ETF Trends and ETF Database, said.

"In this case, though, we have an industry giant stepping in to offer the two most common betas to everyone at no cost. And while every fund could theoretically change their management fee just by filing a new prospectus, in this case, it certainly looks like the 'Zero' is intended to be permanent," he added.

What also makes these zero-fee ETFs noteworthy is that they are tracking widely observed benchmarks and will undercut other low-cost ETFs already listed in the market.

Specifically, BKLC will try to reflect the performance of the Morningstar US Large Cap Index. This will directly compete with the JPMorgan BetaBuilders U.S. Equity ETF (BATS: BBUS), which shows an already dirty cheap 0.02% expense ratio.

Additionally, BKAG will try to reflect the performance of the Bloomberg Barclays US Aggregate Total Return Index, which acts as the benchmark index for index funds like the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) that comes with a 0.05% net expense ratio.

For more information on new fund products, visit our new ETFs category.

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