Forget Failure of Negative-Fee ETF LSLT, Fee War is On

The battle for low-cost ETFs intensified globally in the past few years. The race to launch the cheapest exchange-traded fund in a specific segment had reached such a level that Social Finance Inc., an online lender also known as SoFi, made headlines in early 2019 by proposing two ETFs that waived off managed fees for at least the first year of operation (read: Zero-Fee ETFs to Hit the Market Finally?).

Not only zero-fee ETF, the early-2019 witnessed the launch of negative fee ETFs too. Salt Financial’s new ETF Salt Low truBeta US Market Fund LSLT had plans to pay 0.05% of assets to investors till April 2020 or till the fund crosses the $100 million level, whichever comes earlier. Upon reaching that threshold, the fund would charge 29 bps in fees. The fundhouse already had a product in circulation then called Salt High truBeta US Market ETF SLT.

Both funds failed to gather sizable assets and the issuer announced last month that the fund LSLT -- along with the other product SLT -- would be acquired by Pacer Advisors. It started charging $2.90 fee in May. At the current level, LSLT has an asset base of $8.5 million while SLT has about $8.2 million in assets.

“Even though it worked in the sense that it raised assets, it didn’t raise them enough for us to feel that being in the retail business made sense,” said Alfred Eskandar, co-founder and president of Salt Financial, as noted by Bloomberg and quoted on Yahoo Finance.

Does This Mean End of Low-Fee Era?

Not really. Investors should note that Salt Financials’ ETF tracked an index of its own, and since “self-indexing can save fund issuers money,” the company can go for a negative fee fund. However, for all other issuers, launching a negative-fee ETF may not be possible, but cutting fees to the lower levels is possible to make one’s products competitive.

Notably, BlackRock Inc. BLK recently slashed fees on its largest exchange-traded fund, in an attempt to match the increasingly tough competitor, Vanguard Group. iShares Core S&P 500 ETF’s IVV expense ratio is now 0.03%, down from 0.04%. The latest fee matches that of the competing product Vanguard S&P 500 ETF VOO.

Apart from this, in late June, BlackRock slashed expense ratios for iShares Core S&P Mid-Cap ETF IJH to 0.05% from 0.06%, and for iShares Core S&P Small-Cap ETF IJR to 0.06% from 0.07%. Industry competition remains fierce, especially between BlackRock and Vanguard, the two largest players.

Moreover, BNY Mellon recently launched the first zero-fee bond fund, BNY Mellon Core Bond ETF BKAG as well as another zero-fee product tracking big American companies, BNY Mellon US Large Cap Core Equity ETF BKLC, noted by Bloomberg, quoted on Yahoo Finance. The funds entered the market in April. As of Jul 15, 2020, BKAG has an asset base of $27.9 million while BKLC has amassed about $36.78 million. These two products’ success will tell how investors are taking the concept of zero-fee products.

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BlackRock, Inc. (BLK): Free Stock Analysis Report

iShares Core SP 500 ETF (IVV): ETF Research Reports

iShares Core SP MidCap ETF (IJH): ETF Research Reports

Vanguard SP 500 ETF (VOO): ETF Research Reports

iShares Core SP SmallCap ETF (IJR): ETF Research Reports

Salt High truBeta US Market ETF (SLT): ETF Research Reports

BNY Mellon US Large Cap Core Equity ETF (BKLC): ETF Research Reports

Salt Low truBeta US Market ETF (LSLT): ETF Research Reports

BNY Mellon Core Bond ETF (BKAG): ETF Research Reports

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