More Commission-Free ETFs for Platform

TD Ameritrade says its commission-free ETF platform will nearly double in size, jumping to 569 exchange-traded funds from 314 in early June. The funds will come from 21 providers and cover about 90 Morningstar categories.

The news comes several months after the firm extended trading to 24 hours five days a week for some popular ETFs, like the SPDR S&P 500, iShares MSCI Emerging Markets ETF and SPDR Gold Trust.

“While we’re pleased to again offer our clients a greater selection of commission-free ETFs, we’re particularly excited about the broad range of strategies, sectors and asset classes available without a commission,” according to Eileen Norton, director of investment solutions at TD Ameritrade Institutional.

ETFs from 12 new providers will be part of the larger lineup, along with funds from 13 more Morningstar categories — such as actively managed ETFs with long-short smart beta and environmental social governance strategies. The new ETF providers are Goldman Sachs, VanEck, Nuveen, Pimco, FlexShares, Principal, Global X, John Hancock, IndexIQ, Aberdeen, DWS and USCF.

TD Ameritrade launched its ETF Market Center in 2004 and commission-free ETF trading in 2010. In October 2018, it invested in ErisX, a cryptocurrency exchange working to launch a spot-trading platform; the move came nearly two years after the firm let clients trade Bitcoin futures.

According to the research group ETFGI, the U.S. ETF market had assets of $3.4 trillion and close to 2,000 products at the end of 2018 vs. $237 billion and 157 ETFs in 2004.

Other News Investors are paying less than ever to own mutual funds and ETFs, according to Morningstar’s latest annual fee study. The research finds that the asset-weighted average expense ratio of the funds investors bought in 2018 was 0.48%, down from 0.51% the previous year, which saved investors roughly $5.5 billion in fund expenses.

The asset-weighted average expense ratio for active funds fell from 0.71% in 2017 to 0.67% in 2018, the biggest drop (of 4.9%) since 2000, when Morningstar began to track asset-weighted average fees. The average asset-weighted expense ratio for passive funds fell just slightly, from 0.16% to 0.15%.

Based on this comparison, active investors paid about 4.5 times more than passive investors for funds in 2018. As a result of these fee declines, investors today are paying roughly half as much to own mutual funds and ETFs as they paid in 2000 and about a quarter less than they paid five years ago.

The asset-weighted average measures what investors paid for the funds they bought rather than the fees the funds charged, which better reflects investor preferences.

Morningstar notes that there are several factors driving fund fees lower: greater investor awareness about the importance of minimizing investment costs; increasing competition among asset managers to cut fees as they vie to preserve and grow market share; an evolving financial advice model, moving from commission- to fee-based advice; growing popularity of unbundled funds, which have no embedded fees like 12b-1 fees; and increasing launches of strategic beta funds, which have characteristics of actively managed and passive funds but charge far less than the former, averaging 0.17% asset-weighted vs. 0.70% for active.

Investors are voting with their wallets, buying more low-cost funds and exiting more high-cost ones.

The cheapest funds, which Morningstar defines as having fees in the bottom 20% of any Morningstar category, saw inflows of $605 billion last year. The remaining 80% of funds by cost experienced outflows of $478 billion.

Fund companies, in turn, continue to cut fees. Overall, 42% of mutual funds and ETFs, including both active and passive funds, reported lower expense ratios in 2018 — 32% of passive funds and 43% of active funds.

The biggest percentage fee cuts since 2011 occurred among passive index funds rather than active funds: down 10% versus 8.3% but the average active fund still charges about 1.8 times as much as the average passive fund, basically unchanged from 2017.

Janet Levaux is editor-in-chief of Investment Advisor. She can be reached at jlevaux@alm.com. Bernice Napach can be reached at bnapach@alm.com.