FocusShares ETFs To Undercut Schwab, Vanguard

by on March 2, 2011 | ETFs Mentioned:

In October 2008, FocusShares announced that it was shutting down its four ETFs after the funds had failed to attract significant assets in about a year of operations. That first generation of FocusShares products included hyper-targeted funds such as the Homebuilders Index Fund, SINdex Fund, Homeland Security Index Fund, and Wal-Mart Supplier Index Fund. Almost two and a half years after shuttering its colorful product suite, the firm is preparing for another venture into the ETF space, this time as a low-cost provider of plain vanilla exchange-traded products.

FocusShares, now operating as a unit of Scottrade, is widely expected to offer commission-free trading as a response to attractive platforms rolled out by Schwab, Vanguard, TD Ameritrade, and Fidelity in the last year. The company had previously filed details for four broad U.S. market ETFs (including large, mid, and small cap options) and 11 sector-specific funds (in addition to the nine traditional sectors, real estate and telecom). In a recent SEC filing that seemingly indicates a launch is imminent, FocusShares put the rest of the ETF industry on notice that a new low-cost player is arriving on to the scene [see Free ETF Trading Programs Head-To-Head].

The Focus Morningstar U.S. Market Index ETF (FMU) will charge an expense ratio of just five basis points, undercutting both the Schwab U.S. Broad Market ETF (SCHB, 0.06%) and the Vanguard Total Stock Market ETF (VTI, 0.07%) to become the cheapest option in the All Cap Equities ETFdb Category. FMU will become the cheapest U.S.-listed ETF upon launch; that honor is currently shared by SCHB and VOO.

The Focus Morningstar Large Cap Index ETF (FLG) will also charge five basis points, putting it just below the Vanguard S&P 500 ETF (VOO) as the cheapest fund in the Large Cap Blend Equities ETFdb Category. iShares (IVV) and State Street (SPY) both offer S&P 500 ETFs with an expense ratio of 0.09% [see Comparing the S&P 500 ETF Options].

Several of the other products slated to debut shortly will also be the cheapest in their respective ETFdb Categories, undercutting existing options by a narrow margin. Each of the sector ETFs will charge 0.19%, one bp cheaper than the ultra-popular sector SPDRs.

Ticker ETF Expense Ratio ETFdb Category Category Min. ER
FMM Mid Cap Index ETF 0.12% Mid Cap Blend Equities 0.13%
FOS Small Cap Index ETF 0.12% Small Cap Blend Equities 0.13%
FBM Basic Materials Index ETF 0.19% Materials Equities 0.20%
FCQ Communication Services Index ETF 0.19% Communications Equities 0.25%
FCL Consumer Cyclical Index ETF 0.19% Consumer Discretionary Equities 0.20%
FCD Consumer Defensive Index ETF 0.19% Consumer Staples Equities 0.20%
FEG Energy Index ETF 0.19% Energy Equities 0.20%
FFL Financial Services Index ETF 0.19% Financials Equities 0.20%
FHC Health Care Index ETF 0.19% Health & Biotech Equities 0.20%
FIL Industrials Index ETF 0.19% Industrials Equities 0.20%
FRL Real Estate Index ETF 0.12% Real Estate 0.13%
FTQ Technology Index ETF 0.19% Technology Equities 0.20%
FUI Utilities Index ETF 0.19% Utilities Equities 0.20%

Price Wars Continuing

The last year or so has seen a number of issuers lower expense ratios. Schwab and Vanguard kicked off the price wars, going back and forth for the title of “cheapest ETF” with a series of tweaks to their broad-based equity ETFs in late 2009/early 2010. Last year saw a number of other firms get in on the act, including Van Eck, which reduced fees on a handful of its emerging markets funds, and iShares, which cut expenses on its gold ETF in an attempt to eat into GLD’s market share. More recently, multiple firms have cut expense ratios on popular ETFs after hitting asset breakpoints.

There is evidence to suggest that investors are gravitating towards the most cost-efficient ETF options. Vanguard, known as the provider behind some of the cheapest ETFs on the market, led all issuers with more than $40 billion in inflows last year. The firm’s Emerging Market ETF (VWO) recently surpassed iShares EEM in total assets; both track the MSCI Emerging Markets Index, but VWO is cheaper by a score of 0.22% to 0.69% [see Investors Embracing Low Cost ETFs...Or Are They?].

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Disclosure: Photo courtesy of Dwight Burdette. No positions at time of writing.