ETFs have exploded in popularity over the last several years. Since the ETF rule’s onset in 2019, no launches have proliferated and assets have accrued at a growing pace. Amid ETFs’ rise to relevance, the vehicle’s trademark flexibility has also fostered creative new strategies and use cases. Consider zero fee funds, for example. Zero fee strategies had existed in mutual funds, before, but are also available in the ETF wrapper. Zero fee ETFs seem too be good to be true, then, given the wrapper’s other advantages. Are they?
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First of all, it’s important to know that while zero fee ETFs may not charge that top line fee, certain costs can accrue. Some strategies pay for their administrative costs through lending assts or selling other products. Others might make their money on other products, with zero fee ETFs there to get investors in the door.
While brokers have competed to offer zero cost trading, ETFs with zero expense ratio have been rarer. A recent case to watch, however, may be the zero fee funds offered at BNY Mellon. Historically, many investors have shared that cost stands out as one of the most important factors. The BNY Mellon U.S. Large cap Core Equity ETF (BKLC ) may speak to that exact case.
The fund charges 0.00 bps. Having launched back in 2020, it tracks the Solactive GBS United States 500 Index. In doing so, it looks for large cap equities writ large, screening for liquidity. The ETF also invests in REITs. Intriguingly for that zero bps fee, the fund has outperformed over the last three years.
BKLC has returned 10.4% over three years per ETF Database data. That has outperformed both the fund’s ETF Database Category and Factset Segment averages. The fund recently surpassed $3 billion in AUM, per YCharts data, making it a smaller, but notable ETF player in the equities space.
So, what kind of drawbacks does a zero fee ETF like BKLC present? Investors likely should not expect it run through walls and leapfrog the market. That said, for those looking for a steady market tracker, it could appeal. Per YCharts data, the fund has actually “outperformed” the SPDR S&P 500 ETF Trust (SPY ) over three years. BKLC returned 36.2% in that time to SPY’s 34.95%, as of YCharts data November 12th. Taken together, at least in this example, zero fee ETFs could provide useful building blocks to start portfolios.
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