After years of speculation that recently intensified, exchange traded funds with zero fees arrived Thursday with the debuts of the SoFi Select 500 ETF (NYSE: SFY) and the SoFi Next 500 ETF (NYSE: SFYX).
Both new ETFs from SoFi have fee waivers in place to keep the funds' expense ratios at zero through at least June 30, 2020.
While the arrival of zero-fee ETFs was widely anticipated, the surprise is not that zero-fee ETFs are finally here, but rather their sponsor.
Many industry experts speculated that the first no-fee ETFs would arrive courtesy of a growing issuer looking to take market share from other sponsors or an entrenched ETF issuer with a reputation for low costs.
The new SFY and SFYX represent SoFi's debut on the sponsorship side of the ETF business. The other surprise is that SoFi's zero-fee ETFs are not cap-weighted funds. SFY and SFYX are smart beta products, and alternatively weighted ETFs usually carry higher fees than their cap-weighted rivals.
Why It's Important
SFY, which provides exposure to the 500 largest U.S. companies, “uses a composite growth score to adjust companies’ weightings in the ETF,” according to SoFi. “The score takes into account sales growth, revenue growth, and forward-looking revenue estimates. Companies with stronger growth characteristics receive a higher weight."
That new ETF tracks the Solactive SoFi US 500 Growth Index, while SFYX, the mid-cap offering, targets the Solactive SoFi US Next 500 Growth Index. Home to the 501st though 1,000th-largest U.S. companies, SFYX uses the same methodology and criteria as the large-cap SFY.
“SoFi’s entry into the ETF space comes shortly after the general availability of SoFi Invest, an investing platform that offers both Active (brokerage) and Automated (robo-advisor) investing with no commissions or management fees,” according to the California-based company. “SoFi’s new ETFs will be available through SoFi Invest, as well as through any other brokerage account.”
Over the past several years, many of the top asset-gathering ETFs have had fees of 0.2 percent per year or less, and many of those funds had expense ratios of 0.1 percent or less. Zero-fee ETFs could alter the ETF landscape, assuming advisers and investors flock to the funds.
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