The price war among ETF providers is intensifying in a way that’s never been seen before. Online lender SoFi is planning to enter the asset management business with the first zero-fee ETFs.
The firm, which less than two weeks ago announced its entry into the brokerage business with no-fee trades, has filed with the SEC for four equity ETFs, including two that will waive fees for at least one year.
A day later, Vanguard announced it was cutting fees on 10 ETFs by one or two basis points.
The SoFi news is the bigger surprise, said Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA. “SoFi is essentially crashing the ETF party that’s been around for 26 years and has grown to $3.7 trillion in assets.”
SoFi has filed for two no-fee ETFs — the SoFi 500 ETF (SFY) and the SoFi Next 500 ETF (SFYX), both based on Solactive indexes of mid-cap and large-cap stocks that focus on four growth-oriented fundamental factors, including sales growth and earnings-per-share growth.
It has not disclosed fees for the other two ETFs, so it’s likely they will not be free. Those ETFs are the SoFi 50 ETF (SFYF), another rules-based passive fund based on a Solactive Index, and the SoFi Gig Economy ETF (GIGE), an actively managed ETF.
Toroso Investments, which runs the $7 million TETF ETF — which invests in companies involved in the ETF industry — is the investment advisors for all four ETFs. CSaT Investment Advisory, doing business as Exponential ETFs, is the subadvisor for each.
“SoFi plans to waive the fee for the first year and we would presume it will be continually waived,” said Rosenbluth. “I think there will be more zero-fee ETFs.”
Ben Johnson, director of global ETF research for Morningstar, isn’t so sure about the Industry impact of the SoFi news. “While two of the four funds SoFi has filed for will be free at first, they might not always be free (the expense waiver that makes them so may lapse).”
Also, said Johnson, the SoFi zero-fee ETFs “have no direct competition. It’s not as though their undercutting any similar funds offering like exposure in the manner that Fidelity did,” said Johnson, referring to Fidelity’s introduction of no-fee U.S. and international stock index mutual funds last summer. “It’s unlikely that they’ll win any business away from competitors.”
Both Johnson and Rosenbluth are skeptical about SoFi’s chances of success.
It’s hard to keep the lights on for long (even if they’re virtual ones) without charging anyone anything,” Johnson said.
Rosenbluth noted that while SoFi is “more likely to gather assets at zero fees than three basis points,” the money flowing into ETFs generally is “not as sticky” as money going into mutual funds, especially funds like Fidelity’s four zero-fee funds, which are available for free only on its platform.
(Related: Fidelity Unleashes No-Fee Index Funds)
Rosenbluth added that it’s important for advisors and investors to know exactly what they’re paying for, what each ETF holds. The Vanguard FTSE Emerging Markets ETF (VWO), whose expenses were cut from 14 basis points to 12, is now cheaper than the iShares Core MSCI Emerging Markets ETF, but it doesn’t hold South Korean equities, said Rosenbluth.
Vanguard said the fee cuts announced in the latest ETF prospectus filings were driven by the growing popularity of its ETFs, which make up only about 20% of the firm’s assets but account for more than 35% of Vanguard’s net cash flow over the past three years. Vanguard notes that ETF investors on its retail brokerage platform tend to buy and hold shares. Below is a list of the Vanguard ETFs whose fee cuts were just announced.
- VWO – Vanguard FTSE Emerging Markets ETF: from 14 to 12 bps
- VGK – Vanguard FTSE Europe ETF: from 10 to 9 bps
- VPL – Vanguard FTSE Pacific ETF: from 10 to 9 bps
- VEU – Vanguard FTSE All-World ex-US ETF: from 11 to 9 bps
- VSS – Vanguard FTSE All-World ex-US Small-Cap ETF: from 13 to 12 bps
- VYM – Vanguard High Dividend Yield ETF: from 8 to 6 bps
- VT – Vanguard Total World Stock ETF: from 10 to 9 bps
- VTEB – Vanguard Tax-Exempt Bond ETF: from 9 to 8 bps
- BNDX – Vanguard Total International Bond ETF: from 11to 9 bps
- VXUS – Vanguard Total International Stock ETF: from 11 to 9 bps
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