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Portfolio > Economy & Markets > Stocks

First Negative-Fee ETF Approved by SEC

By Bernice Napach

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First came Fidelity offering no-fee mutual funds last August and September, then SoFi, which introduced a no-fee ETF in April, and now Salt Financial’s ETF that will not only waive its fees for a little more than a year but pay investors to own it.

Following approval by the Securities and Exchange Commission, the Salt Low truBeta U.S. Market ETF (LSLT), which launched in March, is waiving its 29 basis-point expense ratio and contributing five basis points, or $5 for every $10,000, from firm resources to the fund. The effect is a reduction in its expense ratio to -0.05%, which is essentially a payment to investors in the fund.

The negative fee arrangement will continue to stay in effect on the first $100 million in net assets until at least May 31, 2020.

Alfred Eskandar, co-founder and president of Salt Financial, says the two-year-old firm has adopted  the new fee structure “for shelf space” on broker platforms.

“I have too many advisors who have tried to put money into my fund and couldn’t,” says Eskandar, noting that most broker platforms require $25 million, $50 million or $100 million in assets before adding new funds.

“It’s incredibly difficult for new issuers to get attention unless they come up with a niche product, and we’d rather not do that,” says Eskandar.

He describes the Salt Low truBeta U.S. Market ETF as a core holding of 100 low-volatility stocks that are equally weighted and distributed among several sectors whose weightings are capped. (It currently invests in seven of S&P’s 11 sectors.) The ETF rebalances quarterly and currently holds about 85% of assets in large-cap stocks and the remaining 15% in mid-caps.

Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, says the Salt Financial move to a negative fee “is a creative way to potentially jumpstart investor demand and get the fund on the radar for more investors … past the $100 million threshold” that advisors and analysts use as a screening tool for funds. “We think more asset managers should consider such a rebate rather than shutting down funds.”

In addition to the Low truBeta U.S. Market ETF, Salt Financial has another ETF that is its polar opposite, called the Salt High truBeta U.S. Market ETF (SLT). This ETF takes higher risks for potentially higher rewards and charges a 29 basis-point expense ratio.

The firm has also launched the Salt Hi-Lo Risk Momentum Index, which combines the capabilities of both its High and Low truBeta indexes in a single strategy. It’s designed to maintain consistent exposure to lower-volatility stocks while opportunistically adding some higher-beta stocks when the risk seems worth it.

Bernice Napach

@Think_Napach

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