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As the ETF world continues to grow, the competitive landscape continues to evolve. In recent years, a growing number of firms have attempted to differentiate themselves by offering unique exposure to asset classes and strategies not previously available – such as funds tracking the Philippine stock market or ETNs linked to the price of industrial metals such as zinc or tin. More recently, the ETF industry has witnessed escalating price wars, with multiple issuers lowering management fees in an attempt to lure cost-conscious investors. These price wars have sent expense ratios to as low as six basis points, much to the delight of investors accustomed to forking over upwards of 1.5% annually to active mutual funds. But many ETF issuers have recognized that the total cost of ETF investing goes beyond just expense ratios, and have aggressively marketed programs designed to save investors money when executing ETF trades.

As a way to stand out – or perhaps to keep pace – a number of brokerage houses have signed deals to offer commission-free ETF trading as a way to entice new clients who have embraced the benefits of exchange-traded funds. This developments has added an additional consideration for ETF-savvy financial advisors looking to maximize client returns by minimizing fees, and has the potential to be a major factor for investors choosing between two otherwise (nearly) identical funds. Consider the case of IVV and SPY: both track the S&P 500 and both have expense ratios of 0.09%. Commission-free trading options could be the deciding factor for an increasing number of investors.

Although commission-free ETF trading is a relatively new concept, several of the biggest players in the space – including TD Ameritrade, Charles Schwab, Vanguard, and Fidelity – have begun to offer these programs to their clients. Not surprisingly, the scopes of these programs vary, and there are several advantages and limitations for investors each. Below we profile some of the key differences between the four major free ETF trading systems available to investors today.

Vanguard

Vanguard, famous for its low-cost hands-off approach, offers all of its 62 ETFs commission-free to its clients. The company is probably best known for its ultra-cheap Emerging Markets Fund (VWO) and its Total Stock Market ETF (VTI) which have close to $39 billion and $15 billion under management, respectively. Vanguard also offers clients access to a host of government and corporate bond funds including an Extended Duration Treasury Index Fund (EDV) and even a Mortgage Backed Security (VMBS) option as well. Vanguard’s ETF lineup includes all the tools to build a long-term portfolio, including a number of US and international equity options, as well as various broad-based and targeted bond funds.

While Vanguard offers an extremely robust product lineup, the offering of commission-free ETFs does have a few holes. Currently, Vanguard’s ETF lineup includes nothing in the way of commodities, international bonds, or munis, and the level of granularity available (e.g., country-specific funds). Nevertheless, Vanguard offers perhaps the most comprehensive free-ETF trading platform– and considering that the average expense ratio is around 18 basis points, paves the ways for investors to minimize all components of the cost equation.

It’s also worth noting that Vanguard brokerage clients will be charged either $2 or $7 for trading of non-Vanguard ETFs, rates that stack up favorably to the rest of the industry.

Charles Schwab (SCHW)

Schwab’s entrance into the ETF industry came long after many of its rivals had established footholds in the space, but the San Francisco-based firm made a splash when it launched its first ETFs late last year. The firm made trading of its ETFs commission-free for Schwab from the get-go, likely prompting other competitors to follow suit. Schwab currently offers clients a diversified mix of its 11 branded ETFs available to its investors free from commissions. The company’s lineup includes a variety of bond, international equity and domestic equity ETFs, all of which have expense ratios less than 35 basis points and come in at an average of just 0.15%. These low cost options include a short and intermediate Treasury funds, as well as a TIPS product in the bond space. Schwab’s ETF lineup focuses on portfolio building blocks, and as such doesn’t offer much in the way of targeted securities. Investors could easily make a solid – albeit it basic – portfolio with just the 11 products offered from Schwab.

Because Schwab is still building out its ETF lineup, the commission-free offerings are somewhat limited. While the equity offering cover all the bases, Schwab doesn’t yet offer a total bond market ETF equivalent to AGG or BND. Also missing are ETFs offering exposure to muni bonds, junk bonds, or investment grade corporates. Investors looking for commodity exposure won’t find it from Schwab. That could all change in coming months, as the company has plans to continue beefing up its ETF lineup, but for the time being there are some holes in the product offering blanket.

Fidelity

The Boston-based financial giant has teamed up with iShares to offer 25 commission free ETFs from the world’s number one ETF issuer, as well as free trading on Fidelity’s Nasdaq Composite Index Fund (ONEQ). The selection from Fidelity consists of the most popular iShares ETFs, including the popular Russell 2000 Fund (IWM), S&P 500 Fund (IVV), S&P Mid Cap 400 (IJH) Fund, just to name a few. Additionally, the program offers four international equity index funds – ACWI, EFA, SCZ, EEM – which should allow investors to achieve a high level of international exposure across both emerging and developed markets. In the fixed income arena, Fidelity offers investors commission-free access to five funds including its extremely popular AGG, TIP, and LQD. The company also offers exposure to the municipal bond market through MUB and emerging market bonds denominated in US dollars with EMB.

Not included in the list of commission-free ETFs are any commodity products, such as the physically-backed gold (IAU) and silver (SLV) ETFs or the futures-based GSG. Also not included are country-specific equity funds, including the ultra-popular Brazil (EWZ) and China (FXI) ETFs. In the fixed income space, the iBoxx $ High Yield Corporate Bond Fund (HYG) is the biggest omission.

TD Ameritrade

The newest entrant on the list has made up for its late arrival by offering the longest list of commission-free ETFs – more than 100 in total. TD utilized Morningstar’s research team to select the ETFs included in the program, and as a result the scope of offerings is not restricted to a single ETF issuer. Unlike the other commission-free programs, TD’s platform includes a host of products from a variety of issuers, including iShares, PowerShares, State Street, Vanguard, WisdomTree, iPath, and Van Eck, just to name a few. The company will offer the usual lineup of products targeting the main components of a portfolio including 32 bond funds, 31 domestic equity ETFs, and three REIT products.

In another first, the company will offer free trading on four commodity funds, including the popular PowerShares DB Commodity Index Tracking Fund (DBC), and it will be the only one to offer the service on a variety of iShares’ individual country ETFs, ranging from the MSCI Brazil Index Fund (EWZ) to the MSCI Canada Index Fund (EWC). TD’s plan is also the only to offer a commission-free junk bond ETF: State Street’s JNK. Other commission free products not available elsewhere include ETFs focusing on India (INP) and Russia (RSX), as well as a currency carry ETN (ICI) from iPath. It’s interesting to note that TD Ameritrade’s list includes Vanguard’s emerging markets ETF (VWO) but not the iShares product linked to the same underlying index.

TD’s ETF coverage isn’t without a few holes. Of the seven largest US-listed ETFs by total assets, five of them – SPY, GLD, EEM, EFA, and QQQQ – aren’t on the list (those five funds account for about a quarter of all US ETF assets). It should be noted, however, that TD does offer funds linked to the S&P 500 (IVV), MSCI Emerging Markets Index (VWO), and MSCI EAFE Index (VEA).

One other note: investors still don’t have a way to trade precious metals ETFs commission-free – perhaps an opportunity for other firms looking to follow in the footsteps of those highlighted above.

See complete lists of commission-free ETFs available from:

Disclosure: Author long EWZ, IWM, and VWO

Disclaimer: ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships.

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Source: Free ETF Trading: Comparing All the Options