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US ETF to Pay You to Invest

Boutique fund manager Salt Financial has been given approval by the US financial regulator the SEC for a negative fee

James Gard 14 May, 2019 | 3:27PM

US dollars

A US ETF provider has raised the enticing prospect of a fund that pays investors for putting their money in. It comes nearly a year after Fidelity caused a stir in the asset management world by launching a zero-fee product in the US.

Boutique fund manager Salt Financial has been given approval by US financial regulator the SEC for a new fee structure. The Salt Low truBeta US Market exchange traded fund has a 29 basis point management charge (0.29%), which is waived by 34 basis points. Investors will get $5 for every $10,000 they invest.

Crucially, however, the waiver will only remain in place until assets under management reach $100 million. At this point the full 0.29% will kick in and investors will pay the annual charge for the fund. For context, Vanguard’s FTSE 100 ETF (VUKE) has assets under management of nearly £2.6 billion, according to Morningstar data.

Hector McNeil, co-founder of HANetf described the product as a “gimmick”, adding that the ETF is not really offering a negative fee, but “is simply a waiver to encourage early investors and more markedly grab news headlines”.

Salt Financial chief operating officer Alfred Eskandar said the firm had come up with the fee structure after struggling to attract investors to its first ETF, which was launched last year. He said the negative-fee model was necessary to "force our way into this anti-competitive market". 

While the race to the bottom on fees continues across the pond, there is no sign of it coming to the UK at the moment. Fidelity launched two no-free trackers in the United States last August but has no plans to offer a similar product in the UK. Morningstar Inc’s director of fund research, Russel Kinnel said at the time of the effect on US investors: “A few basis points are big news, but they won't have a huge impact on your bottom line.”

Morningstar director of research services, Jackie Beard, analysed UK fund fees last year in a review of charges following the Retail Distribution Review in 2012. Her findings revealed that passive fees have fallen nearly 30% since 2013 and active fees have gone down by nearly 20%. UK investors now pay as little as 6 basis points to invest in a FTSE 100 tracker, the equivalent of just 60p on a £1,000 investment. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Vanguard FTSE 100 UCITS ETF32.60 GBP1.37

About Author

James Gard  is content editor for Morningstar.co.uk

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