“The fee war for beta is pretty much over,” he said. “We’ve seen a lot of people that are done with the fee war and are now interested in, ‘what can I buy that will do better than the market?’”
That’s not to say Venuto thinks zero-fee is dead. Last year, he helped Social Finance Inc., an online lender known as SoFi, unveil two funds without fees, the SoFi Select 500 ETF (SFY) and the SoFi Next 500 ETF (SFYX).
SFY currently has $95 million in assets and SFYX has $11 million. Venuto says the tactic was more for the benefit of SoFi’s existing investors than to attract new ones, and will continue indefinitely for the two products.
In Australia, a different picture: The Pinnacle aShares Dynamic Cash Fund Managed Fund (Z3RO) was a money-market like fund aiming to pay above the official interest rate without management fees. The fund was suspended last month with A$4 million ($2.7 million) in assets, less than a year after its launch.
In a statement to the Australian stock exchange, Pinnacle Fund Services Ltd. said it considers it unlikely the fund “will reach sufficient scale to be economically viable.”
If zero-fee funds did disappear, it wouldn’t necessarily signal a rich new era of profits for ETF issuers. Industry competition remains fierce, especially between giant asset managers like BlackRock Inc. and Vanguard Group, the two largest players.
Just last month, BlackRock lowered the cost on its biggest ETF, the iShares Core S&P 500 ETF (IVV) to match a Vanguard Group rival. For Ben Johnson, co-head of passive strategy at Morningstar Inc., it’s like rival gas stations on the same strip, each trying to undercut the other on an identical product.
“At some point you can’t go any lower,” Johnson said. “When you draw near to that zero bound, the incremental gain to the end investors doesn’t mean a whole heck of a lot.”
Meanwhile, plenty of other issuers are nipping at their heels, seeking to steal some of that dominant market share.
BNY Mellon recently launched the first zero-fee bond fund, the BNY Mellon Core Bond ETF (BKAG) as well as another zero-fee product tracking big American companies, the BNY Mellon US Large Cap Core Equity ETF (BKLC).
Their success may ultimately depend more on the funds than on their fees, however.
“At the end of the day, you get what you pay for,” said Eskandar at Salt Financial.
This article was provided by Bloomberg News.