ETFs

Here Come the Zero-Fee ETFs

A fund that pays you to invest? That’s coming, too.

The race to the bottom for fund fees has finally hit, well, bottom. Two exchange-traded funds that launched at the beginning of April charge 0% in expense ratios—at least for the first 14 months. Another ETF, awaiting Securities and Exchange Commission review, could initially cost less than zero.

The just-launched free ETFs come from online lender SoFi. The firm will waive each of the funds’ 0.19% annual expense ratio until at least June 2020. SoFi Select 500 (symbol SFY) focuses on growing, large-company U.S. stocks; SoFi Next 500 (SFYX) homes in on shares of midsize and smaller U.S. firms. CFRA analyst Todd Rosenbluth thinks the funds will remain free for more than one year. “Either the funds will be successful and the 0% fee will be extended, or they won’t and the products will shut down,” he says.

Meanwhile, relative newcomer Salt Financial is awaiting SEC approval of a low-volatility U.S. stock ETF that would essentially pay its shareholders to invest, at least for a while. Through April 30, 2020, the adviser says it will waive its 0.29% fee and contribute the annualized equivalent of 0.05% on assets, up to $50,000 per year, to the assets of the fund. That means that for every $10,000 invested in the fund, Salt would put in another $5 to boost the value of the fund’s shares.

Both Salt and SoFi have come late to the ETF party, so they are hungry for business as ETFs become more popular in investor portfolios. According to Charles Schwab, ETFs made up 33.5% of investors’ portfolios in 2018, up from 20.8% in 2015. “Firms are eager to participate in this growing market, and they are willing to waive fees to do so,” says Rosenbluth.

Investors should note that fees in the new ETFs are waived only temporarily. More important, fees (or the lack thereof) aren’t everything. Before investors buy in, they should examine a fund’s strategy, its underlying index and how it fits with the rest of their portfolio. Additional no-fee ETFs may come along, but they won’t become the norm, says Rosenbluth.

Our defensive picks shine. Kiplinger ETF 20 funds did their job, tracking their indexes through a choppy market over the past 12 months. Vanguard Total Stock Market, even with its 0.03% expense ratio, edged the 8.6% return of its benchmark, CRSP US Total Market index, with a 9.2% gain.

Other bright spots include two defensive U.S. stock funds, Vanguard Dividend Appreciation (symbol VIG) and Schwab US Dividend Equity (SCHD), both of which beat Standard & Poor’s 500-stock index over the past 12 months. Two of our actively managed Kip ETF 20 bond funds, Pimco Active Bond (BOND) and Pimco Enhanced Low Duration Active (LDUR), also beat their bogeys. Foreign stock funds fared poorly due to trade tensions and slower economic growth overseas.

Most Popular

Where's My Refund? How to Track Your Tax Refund Status
tax refunds

Where's My Refund? How to Track Your Tax Refund Status

If you're waiting for your tax refund, the IRS has an online tool that lets you track the status of your payment.
March 2, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

Recommended

10 High-Yield ETFs for Income-Minded Investors
Investing for Income

10 High-Yield ETFs for Income-Minded Investors

These high-yield ETFs show that there's no shortage of ways to balance risk and reward in the quest for better-than-average income.
March 5, 2021
The Social-Tracking BUZZ ETF: What It Is, What It Isn't
ETFs

The Social-Tracking BUZZ ETF: What It Is, What It Isn't

The VanEck Vectors Social Sentiment ETF (BUZZ) taps into social media's growing voice and David Portnoy's popularity. But the exposure it provides isn…
March 5, 2021
The 21 Best ETFs to Buy for a Prosperous 2021
Kiplinger's Investing Outlook

The 21 Best ETFs to Buy for a Prosperous 2021

Exposure to emerging trends. Core holdings. Tactical defensive plays. The 21 best ETFs for 2021 cover a wide range of options for numerous objectives.
March 1, 2021
T. Rowe Price Financial Services Banks on a Turnaround
Stock Market Today

T. Rowe Price Financial Services Banks on a Turnaround

This fund is a good way to bet on an economic rebound.
February 24, 2021