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Zero-Fee ETFs Have Arrived From Fintech SoFi

By Jeff Schlegel/ FA-Mag.com

How low can exchange-traded fund fees go? The answer is zero with (the recent) launch of two funds from Social Finance Inc., a San Francisco-based online lender and personal finance site.

The SoFi Select 500 ETF (SFY) and SoFi Next 500 ETF (SFYX) both come with gross expense ratios of 0.19 percent, but those management fees will be waived until at least June 30, 2020. For investors, that means zero fees.

People knew this day was coming, particularly after Fidelity last year rolled out four no-fee, index-based mutual funds.

In ETF Land, JPMorgan last month debuted an equity fund that charges an expense ratio of 0.02 percent. That slightly undercuts the 0.03 percent fee charged by the cheapest ETFs from BlackRock Inc., State Street Corp. and Charles Schwab Corp.

According to Bloomberg, more than 97 percent of flows into ETFs last year went to funds that charge 0.20 percent or less.

Low fees are nice, but they shouldn’t be the sole reason to choose a fund. In that vein, what do the SoFi ETFs have under the hood to make them “worth” the zero-fee sticker price?

The SoFi Select 500 ETF tracks the Solactive SoFi US 500 Growth Index composed of 500 of the largest U.S.-listed companies weighted by their free-float market capitalization and then adjusted upward or downward based on a proprietary composite score calculated on three growth-oriented fundamental factors: trailing 12-month sales growth, trailing 12-month earnings-per-share growth and 12-month forward-looking EPS growth consensus estimates.

The index is reconstituted and rebalanced annually.

The mid-cap focused SoFi Next 500 ETF follows those same criteria, but does so based on the Solactive SoFi US Next 500 Growth Index containing the 501st through the 1,000th largest domestic companies.

Tidal ETF Services is handing the trust, strategy, administrative and operational duties of the two SoFi funds, and Exponential ETFs is sub-advisor on the products.

SoFi has two funds in the pipeline that evidently won’t be free: the SoFi 50 ETF is designed to track an equal-weight index of 50 U.S. companies with the strongest growth signals. It’s slated to charge a fee of 0.29 percent.

The SoFi Gig Economy ETF would be an actively managed product investing in companies deemed to be part of the so-called gig economy characterized by flexible work arrangements regarding employers and lifestyles. The proposed expense ratio is 0.59 percent.