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Looking to Cut Costs? Tap Zero-Fee ETFs

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With competition intensifying in the ETF space, the fee-cut war has gained momentum over the years. In a bid to gain market share, ETF issuers have been engaged in a fee war and slashing expense ratios for some of their products aggressively (read: Zero-Fee ETFs to Hit the Market Finally?).

The war has reached such a level that Social Finance Inc., an online lender, also known as SoFi, entered the ETF world last year with new passive ETFs charging zero management fee, according to regulatory filings. The funds intend to waive charges (0.19%) for at least the first year of operation.

Not only SoFi, the zero-fee craze has spread to BNY Mellon as the issuer has issued a few funds that charge nothing as of now. Unlike SoFi, BNY Mellon’s funds’ expense ratios are simply zero with no conditions applied.

Below we highlight those ETFs in detail.

BNY Mellon US Large Cap Core Equity ETF (BKLC - Free Report)

The underlying Morningstar US Large Cap Index is float-adjusted market capitalization weighted index designed to measure the performance of U.S. large-capitalization stocks. It charges zero bps in fees. Microsoft, Apple and Amazon are the top three holdings of the fund. It was launched on Apr 9, 2020 and added about 3.5% past month, beating the S&P 500’s return of 3%.

BNY Mellon Core Bond ETF (BKAG - Free Report)

It is the lowest-cost fixed-income ETF available currently. The fund looks to track the performance of the Bloomberg Barclays US Aggregate Total Return Index. It charges zero bps in fees. The fund hit the market on Apr 24, 2020 and lost only 0.6% past week, almost in line with the aggregate bond market’s performance (read: Successful ETF Launches of First Quarter).

SoFi Select 500 ETF (SFY - Free Report)

The underlying Solactive SoFi US 500 Growth Index follows a rules-based methodology that tracks the performance of 500 of the largest U.S.-listed companies weighted based on a proprietary mix of their market capitalization and fundamental factors. The fund’s investment adviser has now agreed to waive its management fees until at least Jun 30, 2020. The fund was launched in April 2019. The fund gained 4.8% past month.

SoFi Next 500 (SFYX - Free Report)

It is composed of 500 mid-cap U.S. companies. SoFi weights each company based on three growth signals—not just market capitalization. The fees is zero till at least Jun 30, 2020. The fund is up 7.3% past

Why Zero-Fee ETF Launches?

Along with many issuers, we too believe that SoFi and BNY Mellon are late entrants to the burgeoning and overpopulated U.S. ETF market. So, it has to make an impression on investors’ mind that its products can make a killing. 

Having said this, we would like to note that this isn't the first time that the ETF industry has seen a fee waiver. Per an article published on etf.com, in 2016, State Street Global Advisors temporarily waived expenses for its new Real Estate Select Sector SPDR Fund (XLRE - Free Report) . Guggenheim (now Invesco) also did the same for its S&P 500 Equal Weight Real Estate ETF (EWRE - Free Report) , per etf.com.

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