Planned ETFs Have 'Zero' Expense Ratio

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Heather Bell, Managing Editor,

The ETF industry’s race to zero has an unexpected winner in online personal financial services company Social Finance, Inc. (SoFi), which recently filed for the first (effectively) zero-fee ETFs.

The information became available in SoFi’s latest filing for the four funds, two of which appear to be very close to launching. The products include three growth funds and a fund focused on the "gig economy," and are all SoFi-branded funds:

The first three funds will list on the NYSE Arca, while GIGE will list on Nasdaq.

Expense Ratios At Zero

Perhaps the most important feature of the recent filing is the fact that two of the funds, SFY and SFYX, will have fee waivers in place until at least March 27, 2020, effectively bringing their total fund expenses to zero for the first year of their operation. Fees for SFYF and GIGE are not yet listed.

This isn't the first time a fee waiver has made an ETF free to own. In 2016, State Street Global Advisors briefly waived expenses for its new Real Estate Select Sector SPDR Fund (XLRE) to help ease the transition for investors in advance of a significant revision to the GICS classification standard that separated the financial services and real estate sectors. Guggenheim (now Invesco) did the same for its S&P 500 Equal Weight Real Estate ETF (EWRE).

What's different about SoFi's filing is the duration of its waiver, which will last for at least one year instead of three months. Without the waiver in place, SFY and SFYX would have an expense ratio of 0.19%.

Fee Wars Won?

There has been a war raging in the ETF industry these past few years, with issuers aggressively lowering the expense ratios on their funds to attract new investors. There are currently 13 ETFs that charge 0.04% and another five that charge just 0.03% offered by five firms, including Vanguard, BlackRock, State Street, Schwab and Invesco.

Combined, these 17 ultra-low-cost ETFs brought in $69 billion in new assets last year alone, or 22% of the industry's total $315 billion net inflows for 2018.

Closures Making Their Mark

ETF closures are also off to an unusually brisk start before we’ve even completed the second month of the year. Although last year was a record-breaker for ETF shutdowns, with 152 closing during the course of the year, that was largely because of the 50 ETNs that Barclays’ iPath arm shuttered in April.

This year, with Invesco recently completing the shutdown of 19 ETFs in the wake of its multiple acquisitions of other issuers, total closures so far this year stand at 26. That’s versus two during the first two months of 2018.

Additionally, WisdomTree has announced it plans to close eight of its ETFs by mid-March. The ETF industry could be on track for another record year for closures if this pace keeps up.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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