Earlier this month, Fidelity followed through on its promise made earlier in the year. They now offers over 500 commission-free ETFs. This increase puts them in 2nd place for most commission-free ETFs offered by the five discount brokers analyzed each month by ETFMathGuy. The leader is still Vanguard, with approximately 1,800. Our chart below shows the update for Fidelity’s offering, where the Vanguard count only represents Vanguard ETFs. (We will be updating our Vanguard database soon.)
What is the benefit of more commission-free ETFs in a portfolio?
The most obvious benefit is the opportunity to access portions of the market not previously available. I demonstrated this benefit in previously published research entitled “ETF trading strategies to enhance client wealth maximization“. Here at ETFMathGuy, we have seen these opportunities first hand in our optimal portfolios. Each month, we’ve developed portfolios based on the current number of ETFs offered by each discount broker. We have also calculated the expected return associated with these portfolios, and there appears to be a potential opportunity. When constructing portfolios with more ETFs available, we see in the figure below that expected returns generally improve. Note that the pair of dots next to the portfolios are the result of excluding commission-free municipal bonds when generating a portfolio suitable for an IRA.
More commission-fee ETFs may not always be beneficial
This figure shows that having more options to invest can improve the likelihood of generating higher returns. But, the additional ETFs must be sufficiently different those that are already offered. They must also have the potential to generate higher returns. Ameritrade seems to be accomplishing the most with their approximately 300 ETFs. Conversely, ETrade offers many more ETFs than the 59 offered by Vanguard, but doesn’t appear to increase expected returns by much in the portfolios constructed by ETFMathGuy .
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