A pair of ETFs touching on two of the hottest parts of the market debuted today. The Invesco Nasdaq Biotechnology ETF (IBBQ) and the Invesco PHLX Semiconductor ETF (SOXQ) launched with a limited time zero-fee offer.
Both funds will have expense ratios of zero basis points through Dec. 17, 2021, after which they will each charge 19 basis points per year.
By Far The Cheapest ETF In Biotech
IBBQ takes direct aim at the current leader in the biotech ETF category, the iShares Biotechnology ETF (IBB). Both funds track the Nasdaq Biotechnology Index, but the new entrant IBBQ is much cheaper, with an expense ratio of 19 basis points (after Dec. 17) versus 46 basis points for IBB.
IBBQ is also significantly cheaper than the biotech ETF that, up until today, had the lowest expense ratio: the SPDR S&P Biotech ETF (XBI), which has a price tag of 0.35% per year.
Invesco is hoping that its low-cost fund can help it compete with these more established ETFs. IBB has been around for more than 20 years, while XBI is over 15 years old. The Nos. 1 and 2 biotech ETFs currently have $10.9 billion and $7.3 billion in assets under management, respectively.
Lowest Cost Among Semiconductor ETFs
Biotech isn’t the only category where Invesco is making a splash with sharply reduced fees. The aforementioned SOXQ has instantly become the cheapest U.S.-listed ETF focused on semiconductors.
Just as it’s done with IBBQ, Invesco has challenged one of iShares’ oldest funds: the iShares PHLX Semiconductor ETF (SOXX), a 20-year-old ETF that has $6.6 billion in assets under management.
Invesco’s SOXQ tracks exactly the same index as SOXX, but its 19 basis point fee is significantly lower than the 0.46% expense ratio for SOXX.
The fee also comes in 16 basis points below the heretofore cheapest ETF in the space, the 21-year-old VanEck Vectors Semiconductor ETF (SMH)—a trader favorite with $5.5 billion in assets under management.
Well-Positioned Vs. Tough Competition
Invesco’s launch of IBBQ and SOXQ comes at a time in which both the biotech and semiconductor industries have been rolling higher—the former due to the secular tail winds of DNA sequencing and bioinformatics; the latter due to the explosion of digital transformation across the economy.
IBBQ and SOXQ are well-positioned to take advantage of these trends if they persist, but it will be competing against well-established rivals that have been around, in some cases, for over two decades, accumulating considerable brand and liquidity advantages along the way.