TD Ameritrade’s decision to offer free online trading on more than 100 ETFs is a game-changer. But there are a few major holes in the program.
Vanguard, Schwab and Fidelity, who pioneered commission-free ETF trade programs, must all be sweating now because all their programs include only their own funds or, in the case of Fidelity, 25 ETFs from iShares.
But it did leave me disappointed.
What Matt didn’t mention in his latest blog “Invest For Free! (Coming Soon) is that a number of critical ETFs are missing from the impressive array that TD Ameritrade clients can now access.
First in my mind is the SPDR Gold Trust (NYSEArca: GLD). Call me a gold bug or worse, but the absence of GLD or something like it—such as the iShares Gold Trust (NYSEArca: IAU) or the ETFS Physical Swiss Gold ETF (NYSEArca: SGOL)—puts a big asterisk on the so-called free trading program.
With the Fed getting ready to start buying Treasurys when its “QE2” sets sail, and many calling for $1,500 gold, funds like GLD have become core pieces of asset allocation platforms.
I also wish they’d included the iShares Silver Trust (NYSEArca: SLV) or the ETFS Physical Platinum Shares (NYSEArca: PPLT). There are all kinds of ETFs available these days for hedging against a falling dollar, rising commodities prices and the possibility that the bond market will unravel at the first sign of sustainable economic growth.
To be fair, TD Ameritrade did include the iShares Barclays TIPS Index Fund (NYSEArca: TIP), an ETF that owns inflation-protected Treasurys. TIPs work by adjusting principal upward in line with the U.S. consumer price index. As much as that counts for something, benchmarking inflation to the CPI is a dodgy science, as Matt wrote a few years back in the Journal of Indexes. Bottom line in my judgment: TIPs aren’t as good as precious metals for hedging.
One more thing that jumped out was the absence of the SPDR S&P ETF (NYSEArca: SPY), the biggest and most liquid ETF in the world. The commission-free list included the iShares S&P 500 ETF (NYSEArca: IVV), which is a perfectly liquid fund and costs 0.09 percent a year, just like SPY. I actually agree with that choice, as SPY’s grantor trust structure means it has a persistent, small cash drag that causes it to trail IVV in rising markets. It would be fun to know if SPY was left off for this structural reason, or if there was something else at work.
And as long as we’re talking about SPY, why didn’t its Boston-based sponsor State Street Global Advisors have as many funds in the commission-free mix as iShares or Vanguard?
As you noted in your article Matt, there’s a catch to all this commission-free craziness. If you unload a trading position before holding it 30 days ,you’ll owe a short-term trading fee. I guess that will make people like John Bogle happy, but I didn’t particularly like that TD Ameritrade buried that at the end of their press release. I think they’re trying to tell us something.