Someone in ETF-land has finally won the race to zero—but it wasn't by an issuer anyone expected.
On Monday, online personal financial services company Social Finance, Inc. (SoFi) filed for the industry's first (effectively) zero-fee ETFs.
The filing is an update of an existing fund filing made back in January, adding expense information for each of four ETFs in preparation for the funds' launches (read: "Newcomer Tidal Plans 4 ETFs").
Fee Waivers = Zero Fees
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 SoFi 500 ETF (SFY)
- The SoFi Next 500 ETF (SFYX)
- The SoFi 50 ETF (SFYF)
- The SoFi Gig Economy ETF (GIGE)
The first three funds will list on the NYSE Arca, while GIGE will list on Nasdaq.
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.
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?
In recent years, the largest players in the fund industry have aggressively lowered the expense ratios on their funds to attract new investors. Today there are 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 (read: "2018's $315B ETF Inflows 2nd Largest Ever").
Fixed By Zero?
Meanwhile, in September, Fidelity Investments took the fee war to a new level by launching the first zero-fee mutual funds (Read: "Fidelity 'Fixxed' By Less Than Zero").
Unlike SoFi's filing, the Fidelity mutual funds carry zero management fees and no other expenses, making their total operating expense zero in perpetuity.
Fidelity's zero-fee suite, which now includes four equity funds, has a combined $3.36 billion in assets under management. Yet growth in Fidelity's zero-fee mutual funds is inherently limited, because only Fidelity brokerage clients can buy them through Fidelity's own platform.
That's not the case for ETFs: With rare exceptions, most ETFs can be purchased via most brokerage platforms. If an ETF is listed on a public exchange for trade, then anybody can buy them, meaning SoFi's funds could grow without any inherent ceiling in place.