Heading into 2019, there was plenty of chatter about this being the year that a no-fee exchange traded fund would come to
market.
It looks like that's going to happen, but the source of first free ETF is surprising some industry observers.
What Happened
Charles Schwab Corp. (NYSE: SCHW),
Fidelity and JPMorgan Chase & Co.'s (NYSE: JPM) JPMorgan Asset Management were among the firm's expected to launch the first
zero-fee ETF, but Social Finance Inc., also known as SoFi is likely to beat those companies to the punch.
A recent filing with the U.S. Securities and Exchange Commission revealed SoFi's plans for the SoFi 500 ETF, which would traded
under the ticker “SFY;” and the SoFi Next 500 ETF, which will trade with the ticker “SFYX.” Those will be the first ETFs introduced
by San Francisco-based SoFi.
“It should be no surprise more firms want to offer ETFs; these products boast a whopping $3.7 trillion in assets and, in 2018,
just had their second strongest year of net inflow,” said CFRA Research's
Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Monday.
Why It's Important
The SoFi ETFs have a fee waiver that runs until late March 2020. Assuming the fee waiver isn't renewed, the funds would have
annual expense ratios of 0.19 percent, or $19 on a $10,000 investment.
Fund companies are expected to use zero-fee products as a way of getting investors in the door, betting that those investors
will eventually transition to higher-fee products and services. Real world evidence confirms that investors will embrace no fee
funds. Last year, Fidelity
introduced four index funds with no expense ratios and today, those funds have over $3.30 billion in combined assets under
management.
“SoFi is definitely late to arrive to the ETF market (now 26 years old) and needs to make a splash to garner interest,” said
Rosenbluth. “With its updated filing with the SEC for its first four ETF products the firm has done just that. SoFi disclosed that
SoFi 500 ETF and SoFi Next 500 ETF will be available without any expense ratios, the first of their kind; SoFi says it plans to
waive the expense ratio for these funds. Instead of bringing their own assets, as some more recent ETF entrants have done, SoFi
plans to show up to the party with its own open bar and a sushi chef.”
The company recently debuted SoFi
Invest, which features online-based active and automated investing options.
What's Next
In December, JPMorgan Asset Management filed plans for the JPMorgan BetaBuilders US Equity ETF and that filing doesn't feature
an expense ratio, stoking speculation that the issuer could be a player in the zero-fee ETF arena as well.
“If SoFi is able to convince ETF partygoers that their products are worthy of investor attention and assets, it will be a
challenge for other firms to ignore,” said Rosenbluth. “So ETF investors prepare for the party to include top-shelf drinks and
shrimp tempura rolls.”
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