Commentary

Last month, Fidelity and Schwab announced an expansion of the commission-free ETFs offered to their customers. We touched on this point in a recent ETFMathGuy Blog post. But, we didn’t get into much of the details of what an expanded lineup of commission-free ETFs would mean for an investor. So, in this post, we will dig into some of cost details, like expense ratios and bid-ask spreads.

Fidelity’s expanded list of commission-free ETFs for 2019

The announcement on February 12, 2019 indicated over 500 commission-free ETFs. As a current Fidelity customer, I was delighted to see the expansion. Unfortunately, as of March 16, 2019, Fidelity’s ETF screener revealed only 357 ETFs as commission-free. Note that this screen is only available to current Fidelity customers.

Given the strong reputation Fidelity has in the investment community, I am sure they will follow through soon with their fully expanded lineup of more than 500 commission-free ETFs. However, it is unfortunate that Fidelity’s press release didn’t give a specific timeline for when the fund expansion will occur in its entirety, except to say “…in the coming months”.

Schwab’s expanded list of commission-free ETFs for 2019

Schwab now claims 500+ commission free ETFs. We downloaded the list of Scwhab’s expanded commission-free ETFs, and found exactly 500. So, we are not sure where the “+” comes from, but this is still quite a large lineup.

How do the expense ratios compare?

Expense ratios are important, as they are a continuous drag on returns. So, ETFs with lower expense ratios than others tracking the same index should produce higher returns. Using data obtained from ETF.com, we created charts to show a histogram of expense ratios for the commission-free ETFs from Fidelity and Schwab.

What does this data show us? Generally, expense ratios are lower for Fidelity’s commission-free ETFs. But, there are quite a few (about 20% or 1 out of 5) of Fidelity’s commission-free ETFs with an expense ratio between 0.4% and 0.5%. So, with a little careful selection, Fidelity offers a larger fraction of commission-free ETFs at lower expense ratios then Schwab.

How do the Bid-Ask spreads compare?

Bid-ask spreads are the costs incurred when an ETF is bought or sold, and which I discuss at length in my article “Is there a free lunch in commission-free ETFs?“. Once again, using data from ETF.com, we see that nearly 80% of the commission-free ETFs from Fidelity have spreads below 0.2%. This compares to about 74% of funds from Schwab that have spreads below 0.2%. Thus, Fidelity’s commission-free ETFs have generally lower spreads then those offered by Schwab. So, for more active investors, Fidelity’s commission-free ETFs appear to have the advantage of lower transaction costs.

Conclusions

Competition for investor assets continues, to the benefit of investors using commission-free ETFs. In this post, we discussed some of the details of the updated lineup of commission-free ETFs now offered by Fidelity and Schwab. We find that while Schwab still offers more ETFs commission-free, Fidelity’s costs are generally lower. Lower expenses are important, as they can often lead to higher returns for funds tracking similar indices.

Thanks for reading!