FocusShares, the Montvale, N.J.-based exchange-traded fund firm that's on the verge of rolling out a broad new lineup of 15 U.S. equity funds, has priced some of its funds to undercut competing products from the ETF industry's leading low-cost providers, Vanguard and Schwab, according to a regulatory filing.
FocusShares' Morningstar US Market Index ETF (NYSEArca:FMU) will undercut the Schwab U.S. Broad Equity ETF (NYSEArca:SCHB) by 0.01 percentage point, which will make it the cheapest ETF in its segment once it launches. Also, its Morningstar Large Cap Index ETF (NYSEArca:FLG) undercuts Vanguard's S&P 500 ETF (NYSEArca:VOO), also making it the cheapest ETF in its segment.
FocusShares parent, Scottrade, said in December that the ETF company was likely to roll out the new funds early in 2011, and today's filing makes it look like the rollout is coming soon. The company revealed tickers in a filing in early February. The revelation of tickers and prices of ETFs often suggests that the rollout of a particular fund or group of funds is near, if not imminent.
The arrival of another low-cost ETF provider is likely to keep downward pressure on ETF expense ratios in general. Moreover, industry sources say Scottrade will offer its customers free trading on the new FocusShares ETFs, though a Scottrade official declined to comment on that in a telephone interview with IndexUniverse.com in December. Both Schwab and Vanguard offer commission-free ETF trading to clients buying and selling their respective proprietary ETFs.
The low-cost strategy appears to be working for both Vanguard and Schwab. Vanguard, which led all other ETF firms last year in asset gathering, is now the No. 3 U.S. ETF firm, with $156.69 billion in assets as of Feb. 25. Schwab, a relative newcomer to the ETF industry, began its product rollout in November 2009, and its growing lineup has raked in almost $3.46 billion since then, according to data compiled by IndexUniverse.com.
FocusShares' 15 planned funds use Morningstar indexes and cover just about every investment sector and style in the U.S. equities universe.
Competing On Price
The tickers and prices of FocusShares funds in competition with funds from Schwab and Vanguard are:
- 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 (NYSEArca: SCHX)
Expense ratios of the other 13 other FocusShares ETFs are as follows:
- Focus Morningstar Mid Cap Index ETF (NYSEArca:FMM), 0.12 percent
- Focus Morningstar Small Cap Index ETF (NYSEArca:FOS), 0.12 percent
- Focus Morningstar Basic Materials Index ETF (NYSEArca: FBM), 0.19 percent
- Focus Morningstar Communications Services Index ETF (NYSEArca: FCQ), 0.19 percent
- Focus Morningstar Consumer Cyclical Index ETF (NYSEArca: FCL), 0.19 percent
- Focus Morningstar Consumer Defensive Index ETF (NYSEArca: FCD), 0.19 percent
- Focus Morningstar Energy Index ETF, (NYSEArca FEG), 0.19 percent
- Focus Morningstar Financial Services Index ETF (NYSEArca: FFL), 0.19 percent
- Focus Morningstar Health Care Index ETF (NYSEArca:FHC), 0.19 percent
- Focus Morningstar Industrials Index ETF (NYSEArca:FIL), 0.19 percent
- Focus Morningstar Real Estate Index ETF (NYSEArca:FRL), 0.12 percent
- Focus Morningstar Technology Index ETF (NYSEArca:FTQ), 0.19 percent
- Focus Morningstar Utilities Index ETF (NYSEArca:FUI), 0.19 percent
A New Beginning
FocusShares, which abandoned its tactical suite of products after the 2008 market crash, unveiled its new broad-based asset allocation strategy in a filing in December with the Securities and Exchange Commission. The ETF firm became a unit of St. Louis-based online discount trading firm Scottrade in June 2010.
Scottrade's acquisition of FocusShares appears to be the financial centerpiece of FocusShares' comeback plans. The company's former lineup of ETFs included funds focused on homebuilding and Walmart supplier companies.
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 strategies, 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.
An official at Scottrade declined to discuss the terms of the transaction with IndexUniverse.com in a telephone interview last month.
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