'Almost Zero Fees'... US Wall Street's ETF Management Fee Reduction War

US SSGA Launches ETF with 0.02% Fee
WSJ "Fee-Cutting War Reaches Peak"

As the competition to lower fund fees intensifies on Wall Street in the United States, an exchange-traded fund (ETF) with virtually 'zero (0)' fees has emerged.

Wall Street Sign (Asia Economy = Yonhap News)

According to the Wall Street Journal (WSJ) on the 18th (local time), U.S. asset management company State Street (SSGA) lowered the fee for its ETF product SPLG, which tracks the S&P 500 index, to 0.02% last month. This is one-quarter of the fee for SPY, another popular ETF from the same company that tracks the same index.

ETF fees averaged 1% just 20 years ago, but due to the competition to lower fees, ETFs with fees close to 0% have appeared. Currently, the average ETF fee in the U.S. is about 0.55%. Eric Balchunas, senior ETF analyst at Bloomberg Intelligence (BI), Bloomberg's economic research institute, described it as "hell for issuers but heaven for investors."

Such low fees benefit long-term investors. According to SSGA, if individual investors invest $1 million (about 1.322 billion KRW) in an ETF with a 0.05% fee for 40 years, they can save $370,000 (about 489 million KRW) compared to when the fee is 1%.

Asset managers are lowering fees to secure fund capital. When SSGA halved the fee of the SPDR Portfolio High Yield Bond ETF from 0.1% to 0.05% on the 1st of last month, $611 million (about 810 billion KRW) flowed in during August alone. Especially, unlike active funds whose returns fluctuate based on the fund manager’s investment strategy, ETFs’ performance depends on the index, leading investors to flock to products with lower fees. Asset managers are leveraging this trend to generate profits through a 'low margin, high volume' approach and to gain promotional benefits by lowering fees.

Following general passive ETFs, asset managers are also lowering fees for 'active ETFs,' which have all the characteristics of active funds. JP Morgan and Dimensional Fund Advisors recently launched active ETFs with fees lowered to 0.35% and 0.19%, respectively. Active ETFs track an index above a certain ratio while allowing the fund manager to adjust the investment items and weights for the remaining portion to generate additional returns. Due to fund manager operating costs, active ETFs generally have higher fees than typical ETFs.

The WSJ evaluated that as asset managers have lowered some ETF fees to virtually the limit, the decades-long fee war has reached its peak. Susan Thompson, head of distribution at SSGA, said, "We think we are close to the end (of fee reductions)," adding, "Someone might lower it to zero, but in that case, they will probably incur losses."

This content was produced with the assistance of AI translation services.