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ETF News And Commentary

The ETF world is becoming increasingly dynamic. While some issuers are lining up with new products to attract investors and increase their asset base, several others are reducing fees on their products to get more competitive.

This in-fighting among issuers has been great news for investors who can choose the cheapest product from a plethora of funds available in the market (read: 3 Dirt Cheap Top Ranked ETFs to Buy Now).

While there are a number of factors to consider (including the index tracked by the fund, issuer and assets under management, and diversification which investors should look into before investing in ETFs), cost is an important factor that cannot be ignored. This is especially true when two funds track similar, or even identical, indexes, thereby making the cheaper fund more attractive.

In a recent press release, US Commodity Funds (USCF) revealed that it has slashed fees on four of its products, thereby cutting down costs for those investors holding these funds. The cut takes a cue from the latest fee reductions by Vanguard, which has slashed fees for five of its international stock ETFs (read: Vanguard Slashes Fees for 5 ETFs Including VWO).

United States Commodity Index Fund (USCI - ETF report), United States Copper Index ETF (CPER - ETF report), United States Agriculture Index Fund (USAG - ETF report) and United States Metals Index Fund (USMI - ETF report) are the four products which have seen a cut in their expense ratios. While the cut will probably hit the issuer’s bottom line in the near term, it could result in an increase in assets overall for the long haul.

“These funds were designed with the buy-and-hold investor in mind, and we want to demonstrate that we also view these as long-term investments.” John Hyland, USCF’s Chief Investment Officer, said in the press release.  “We believe this will be an effective longer-term strategy to continue to grow our assets.”

Investors should note that apart from USCI, none of the other funds has been quite profitable for the issuer as they all have a very small asset base. While CPER has assets a little over $4 million, both USAG and USMI have assets under $3 million (see all Industrial Metals ETFs).

However, USCI manages a sizable asset base of over $600 million and will now charge 80 basis points annually in comparison to 95 basis points earlier. The fund tracks the SummerHaven Dynamic Commodity Index Total Return.

The product provides exposure to four commodity sectors with the largest exposure to Agriculture (43%), though Energy, Industrial Metals and Precious Metals also have decent exposures to the fund.

With the recent fee cut, USCI has become slightly cheaper than the most popular fund – DB Commodity Index Tracking Fund (DBC) in the Commodity ETF space. DBC has an asset base of $5.6 billion and charges 93 basis points as fees (see all Broad Commodity ETFs here).

For the three other products, the issuer has cut the fees from 95 basis points to 65 basis points. Thanks to the big reduction in fees, USMI and CPER have become the cheapest options in their respective categories. Though the slashed fee for USAG is not the cheapest in its space, it is nonetheless less than the average category expense ratio.

For investors looking for a list of US commodity fund fee changes, we have highlighted the company’s products below, by AUM, along with their old and new expense ratios:

ETF AUM (in millions) as of May 05 New Expense Ratio Old Expense Ratio
USCI $612.6 0.80% 0.95%
CPER $4.1 0.65% 0.95%
USAG $2.7 0.65% 0.95%
USMI $2.2 0.65% 0.95%
 
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