FocusShares, the exchange-traded fund company that shuttered its
lineup of niche funds in the wake of the 2008 financial crisis,
came roaring back to life today by launching 15 ETFs focused on
various sectors and styles in the U.S. equity universe, some that
are the cheapest on the market.
The Montvale, N.J.-based company's Focus Morningstar US Market
Index ETF (NYSEArca:FMU) has an annual expense ratio of 0.05
percent, 0.01 percent cheaper than the Schwab U.S. Broad Market
Equity ETF (NYSEArca:SCHB). Moreover, its Focus Morningstar Large
Cap Index ETF (NYSEArca FLG)-also priced at 0.05 percent, is 1
basis point cheaper than the Vanguard S&P 500 ETF
The company's splashy return to the vibrant and highly
competitive world of ETFs is predicated on it being acquired in
June 2010 by Scottrade, the St. Louis-based online discount
brokerage. The transaction was completed stealthily, without press
releases, in part because Scottrade is privately held. Word of the
deal percolated through the ETF industry rumor mill, as did talk
the new ETFs would be available commission free to Scottrade
Terms of the acquisition weren't disclosed, but on Wednesday a
Scottrade official confirmed that trading of the new ETFs will be
commission free to Scottrade's 2 million clients as well as 800
financial advisors who are part of its Scottrade Advisor Services.
The launch of cheapest-in-class ETFs and free trading sends a clear
signal that together, FocusShares and Scottrade are dead serious
about getting traction in an ETF world that increasingly is defined
by low prices.
"These are the first proprietary products that Scottrade has
ever had," Kelly Doria, the top public relations officer at
Scottrade, said in a telephone interview on March 30. "We think
these 15 domestic equity ETFs are a good foundation, and we'll be
looking to expand that at some point in the future, and time will
tell what specific products will be."
The 15 ETFs, their trading symbols and their expense ratios
- Focus Morningstar US Market Index ETF:(NYSEArca:FMU), 0.05
percent. That's cheaper than both the 0.06 percent cost of
Schwab's "SCHB" and the 0.07 percent cost of the Vanguard Total
Stock Market ETF (NYSEArca:VTI).
- Focus Morningstar Large Cap Index ETF:(NYSEArca:FLG):0.05
percent. That's less expensive than VOO's 0.06 percent expense
ratio and the 0.08 percent cost of the Schwab U.S. Large Cap ETF
- Focus Morningstar Mid Cap Index ETF (NYSEArca:FMM), 0.12
- Focus Morningstar Small Cap Index ETF (NYSEArca:FOS), 0.12
- Focus Morningstar Basic Materials Index ETF (NYSEArca:FBM),
- Focus Morningstar Communications Services Index ETF
(NYSEArca:FCQ), 0.19 percent
- Focus Morningstar Consumer Cyclical Index ETF (NYSEArca:FCL),
- Focus Morningstar Consumer Defensive Index ETF
(NYSEArca:FCD), 0.19 percent
- Focus Morningstar Energy Index ETF, (NYSEArca FEG), 0.19
- Focus Morningstar Financial Services Index ETF
(NYSEArca:FFL), 0.19 percent
- Focus Morningstar Health Care Index ETF (NYSEArca:FHC), 0.19
- Focus Morningstar Industrials Index ETF (NYSEArca:FIL), 0.19
- Focus Morningstar Real Estate Index ETF (NYSEArca:FRL), 0.12
- Focus Morningstar Technology Index ETF (NYSEArca:FTQ), 0.19
- Focus Morningstar Utilities Index ETF (NYSEArca:FUI), 0.19
Doria stressed that the free trading piece of the product offering
had no limits, meaning everyone from frenzied day traders jumping
in and out of positions to buy-and-hold investors who needed to
rebalance or tweak their asset allocation would all have
commission-free trades no matter how often or seldom they
"These ETFs really can be for an investor, for a trader, for an
advisor, for the institutional market-they're completely flexible
for whoever wants to trade and for whatever they want to trade them
for," Doria said.
Partnering with Morningstar was an important piece of the
strategic vision for both FocusShares and Scottrade, Doria said.
The world of exchange-traded funds doesn't yet have many ETFs with
the Chicago-based financial information firm as index provider,
which is likely to give FocusShares and Scottrade another arrow in
their marketing quill, she added.
Throw Out The Old
FocusShares abandoned its tactical suite of products after the
2008 market crash, but suggested at the time it wasn't prepared to
shutter its doors completely. In an October 2008 interview with
IndexUniverse.com, FocusShares Chief Executive Officer Erik Liik
said the market environment was no longer hospitable to niche the
company's strategy, and that FocusShares aimed to retool itself as
a purveyor of broad investment solutions.
"There's just no economy to support those [tactical] products
now, so investing in the long-term future is a better approach for
us," Liik said in the 2008 interview.
FocusShares unveiled the new broad-based asset allocation
strategy in a filing in December with the Securities and Exchange
Liik remains the top executive at FocusShares and will have
broad discretion in formulating the company's strategic vision
going forward, Doria said.
Bring In The New
Doria said part of the thinking behind the acquisition of
FocusShares was that the ETF firm already had the so-called
exemptive relief from the SEC that gives a money management firm
the regulatory permission to market ETFs.
Doria also suggested that Scottrade, a 31-year-old privately
held company, has hewed closely to the sensibilities of its founder
and chief executive officer, Rodger Riney, essentially without the
pressures public companies face in terms of meeting market notions
of shareholder value.
She noted:"We are a company that has had the philosophy of
growing our business, over time, independent of what is happening
around us. We've never had a layoff in our history; we've grown
organically; and we've not had mergers with other brokerage firms
as a means of growing our account base. So I would say that this
acquisition is consistent.
"There are two ways to get to market:You could offer someone
else's ETFs or you could have your own. In order to get to market
quicker, it made sense for us to acquire an advisory firm that
already had the exemptive relief from the SEC so that we could make
products available to our customers and for the marketplace that
would be attractive and benefit investors overall."
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