BNY Mellon introduces ultra-low-cost ETFs, including zero-fee funds

Apr 13th, 2020 | By | Category: Equities

Financial services giant BNY Mellon has introduced a trio of ultra-low-cost ETFs, with five more fund launches planned for the coming weeks. The NYC-headquartered firm is well established in the ETF space as a custodian and administrator but this is the first time it has rolled out its own ETFs.

Mitchell Harris, Chief Executive Officer, BNY Mellon Investment Management

Mitchell Harris, Chief Executive Officer, BNY Mellon Investment Management.

The ETFs are being managed by the firm’s investment management unit, BNY Mellon Investment Management, which comprises eight standalone asset management entities managing a combined $1.9 trillion in assets under management (as at 31 December 2019)

The three debut ETFs are equity strategies covering the large-, mid-, and small-cap sections of the US equity market.

Each fund is linked to a Morningstar index that provides straightforward, market-cap-weighted exposure to the desired size bucket.

The funds have listed on NYSE Arca and come with extraordinarily competitive management fees, issuing a bold challenge to rival issuers. They include a zero-fee product.

Although the market for low-cost core ETFs (and ETFs in general, for that matter) is fiercely competitive, BNY Mellon would appear to have the brand strength, asset management experience, and front-to-back-office operational capability to make low-cost ETFs work economically from a commercial perspective.

Stephanie Pierce, Chief Executive Officer of ETF and Index for BNY Mellon Investment Management, commented, “Our aim is to strengthen and deepen our relationships with our clients by delivering relevant investment products and product structures that meet their evolving needs. That is why we are making our leading institutional-quality investment solutions available to a wider range of clients through a low-cost ETF fund structure.”

Mitchell Harris, Chief Executive Officer, BNY Mellon Investment Management, added, “By combining BNY Mellon Investment Management’s three decades of indexing experience as one of the pioneers in the field, with BNY Mellon’s existing end-to-end ETF capabilities, we are putting the entire firm to work for our clients to offer high-quality products at a very competitive fee level. With the launch of our ETF range, BNY Mellon will now provide a complete ETF solution for our clients across the enterprise.”

The funds

The BNY Mellon US Large Cap Core Equity ETF (BKLC US) tracks the Morningstar US Large Cap Index. The fund comes with an expense ratio of zero which is offered to investors without fee waivers or other restrictions.

As an aside, SoFi became the first issuer to launch zero-fee ETFs in the US; however, it employs fee waivers which reduce funds’ expense ratios to nil. If SoFi decides not to renew the waivers when they expire in July, the ETFs will begin charging expense ratios of 0.19%. In contrast, the expense ratio for the BNY Mellon US Large Cap Core Equity ETF is simply zero.

The BNY Mellon US Mid Cap Core Equity ETF (BKMC US) tracks the Morningstar US Mid Cap Index. The fund comes with an expense ratio of 0.04%, matching the price of the $26bn Vanguard Mid-Cap ETF (VO US) and the $5bn Schwab US Mid-Cap ETF (SCHM US).

Finally, the BNY Mellon US Small Cap Core Equity ETF (BKSE US) tracks the Morningstar US Small Cap Index. This fund also commands an expense ratio of 0.04% and offers a direct alternative to the $7bn Schwab US Small-Cap ETF (SCHA US).

Launch pipeline

BNY Mellon expects to expand its low-cost ETF offering with a further five funds in the coming weeks. These later additions will include two equity ETFs tracking international developed and emerging market stocks, followed by three fixed income ETFs tracking Bloomberg Barclays indices on US aggregate, short-term corporate bond, and high yield exposures.

Similarly, these funds will be amongst the lowest-cost in their categories with the US aggregate bond ETF also being listed with zero management fees.

The BNY Mellon International Equity ETF (BKIE US) will track the Morningstar Developed Markets ex-US Large Cap Index and come with an expense ratio of 0.04%.

The BNY Mellon Emerging Markets Equity ETF (BKEM US) will track the Morningstar Emerging Markets Large Cap Index and come with an expense ratio of 0.11%.

The BNY Mellon Core Bond ETF (BKAG US) will track the Bloomberg Barclays US Aggregate Total Return Index and will come with an expense ratio of 0.00%.

The BNY Mellon Short Duration Corporate Bond ETF (BKSB US) will track the Bloomberg Barclays US Corporate 1-5 Years Total Return Index and come with an expense ratio of 0.06%.

The BNY Mellon High Yield Beta ETF (BKHY US) will track the Bloomberg Barclays US Corporate High Yield Total Return Index and will come with an expense ratio of 0.22%.

Pierce added, “Following the launch of this initial suite of eight ETFs, we expect to introduce additional ETFs in the future that feature the expertise and differentiated capabilities of our affiliated investment firms.”

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