Fidelity Investments, the Boston-based brokerage firm, has added
five new iShares funds to its lineup of ETFs that its customers can
trade without paying a commission, bringing to 30 the number of
ETFs in its free-trading program.
Fidelity, which offers just one ETF of its own, the Fidelity
Nasdaq Composite Index Tracking Stock (NasdaqGM:ONEQ), struck a
deal with iShares' parent BlackRock last year to begin offering
commission-free trades on 25 iShares funds. The addition of the new
ETFs marks the one-year anniversary of that agreement, Fidelity
said in a press release.
The practice of offering commission-free ETF trading-a marketing
technique designed to make ETFs more palatable to individual
investors-has been gaining traction in the brokerage space in
recent years. Wells Fargo began offering a limited number of free
ETF trades to large account holders in 2005. Last year, TD
Ameritrade and Vanguard added commission-free trading programs,
following a move by Schwab late in 2009.
While Fidelity's program has been popular with its customers-it
said its commission-free ETFs attracted investor cash at three
times the rate of funds outside the program-its rival brokerages
offer more comprehensive programs. TDAmeritrade, for instance,
allows investors to purchase more than 100 ETFs from a range of
fund sponsors commission-free. Vanguard offers its brokerage
clients commission-free trades on its entire lineup of ETFs.
The iShares ETFs that Fidelity added to its free-trading program
- iShares iBoxx $ High Yield Corporate Bond Fund
- iShares Dow Jones Select Dividend Index Fund
- iShares Dow Jones International Select Dividend Fund
- iShares Dow Jones U.S. Real Estate Index Fund (
- iShares MSCI ACWI ex-US Index Fund (
HYG and IDV carry expense ratios of 0.50 percent of assets under
management, while DVY charges 0.40 percent and IYR costs 0.47
percent. ACWX, at 0.35 percent, is the least expensive new
No Free Lunch
While the promise of commission-free trading may be appealing to
retail investors, Index Universe's Dave Nadig pointed out in a blog
last year following the announcement of Vanguard's free-trading
program that the cost of executing a so-called free ETF trade may
be borne indirectly by the fund's shareholders.
"iShares is writing a check to Fidelity to cover the cost of
commissions, in exchange for having a commission-free presence on
Fidelity's website," Nadig wrote. If increased assets under
management fail to make up for the cost of commissions, then
shareholders may be on the hook.
"The enterprise will demand profits from somewhere,
theoretically putting upward pressure on expense ratios."
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