Newcomer Rolls Out Zero-Fee ETFs

April 11, 2019

Today a new firm burst into the ETF industry with a very interesting proposition. The SoFi Select 500 ETF (SFY) and the SoFi Next 500 ETF (SFYX), covering the large-cap and midcap segments, respectively, have fee waivers that bring their expense ratios down to zero through June 30, 2020, though that date could be extended.

SFY and SFYX both come with an expense ratio of 0.19%, but both also come with waivers of 0.19%, rendering their expense ratios effectively zero. Both list on the NYSE Arca.

SoFi

SoFi is known as a personal finance company, and started out providing student loan refinancing. However, over the last few years, it has expanded its range of services to include mortgages, personal loans and investment products. The ETF family is part of the fund’s investment platform, along with brokerage and robo advisor services, according to SoFi representatives.

The firm’s ETFs are designed for its members, a cohort that can be described as retail investors who are young and highly educated, with high income and good credit. The growth tilt of the two ETFs stems from these characteristics, with the higher risk and potential reward appealing more to investors who skew younger and have a longer investment time horizon.

SoFi also saw the opportunity to reduce costs by adding the fee waiver to the fund’s expense ratio, and it aims to keep the share price low for the ETF so investors find it easy to access. Part of the intention behind the launches is to build SoFi’s credibility and reputation as an asset management and investment platform, the firm says, asserting it will only launch products aligned with its customers’ interests.

Methodology

SFY’s index covers the 500 largest U.S. stocks by market cap, while SFYX covers the next 500 largest U.S. stocks. Companies in both indexes are weighted by a combination of free-float market cap and a composite growth score based on three criteria, according to the prospectus:

  • trailing 12-month sales growth
  • trailing 12-month earnings per share growth
  • 12-month forward-looking EPS growth consensus estimates

The document notes that, at the start of March, the biggest holdings in SFY’s index were Cisco at 5.33%, Amazon.com at 4.91% and Apple at 4.45%, while the index for SFYX had Integrated Device Technology at 1.52%, AGNC Investment at 0.76% and Invesco at 0.73%. Rebalancing occurs on an annual basis.

Contact Heather Bell at [email protected]

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