Financial services giant BNY Mellon has launched five new ultra-low-cost ETFs to complement the trio of funds which signaled the firm’s debut as an ETF issuer two weeks ago.
BNY Mellon now offers eight ETFs, each amongst the lowest cost for its category.
The new additions include two equity ETFs tracking international developed and emerging market stocks, and three fixed income ETFs covering US aggregate, short-term corporate, and high-yield bond exposures.
In line with BNY Mellon’s inaugural ETFs, which target the large-, mid-, and small-cap sections of the US equity market, the new funds are amongst the lowest-cost in their categories.
The US aggregate bond ETF has been listed with an expense ratio of zero, without any waivers, becoming the first fixed income ETF to offer veritable free management.
The entire ETF range has been listed on NYSE Arca and is overseen by the firm’s asset management unit, BNY Mellon Investment Management, which comprises eight standalone entities with a combined $1.9 trillion in assets (as at 31 December 2019).
BNY Mellon is already a well-established fund custodian and administrator, bringing considerable front-to-back-office operational capability, brand strength, and asset management experience to its foray as an ETF issuer.
The funds
The BNY Mellon International Equity ETF (BKIE US) tracks the Morningstar Developed Markets ex-US Large Cap Index.
The index includes common stocks, preferred stocks, and REITs from developed market countries excluding the US. Developed market countries are defined as those with an annual per capita gross national income that falls in the World Bank’s high-income category for the most recent three years. The index targets the top 70% of the market capitalization within each country, while securities that fall in the bottom 25% of the universe by trading volume will not be included. The index is weighted by float-adjusted market capitalization and rebalanced quarterly.
With an expense ratio of 0.04%, the fund is cheaper than its leading competitors including the $64bn Vanguard FTSE Developed Markets ETF (VEA US), which costs 0.05%; the $60bn iShares Core MSCI EAFE ETF (IEFA US), 0.07%; and the $18bn Schwab International Equity ETF (SCHF US) at 0.06%.
The BNY Mellon Emerging Markets Equity ETF (BKEM US) tracks the Morningstar Emerging Markets Large Cap Index.
The index uses a similar methodology as described above, targeting countries with an annual per capita gross national income that did not fall in the World Bank’s high-income category for the most recent three years. Countries with stock markets that exhibit significant issues with transparency, market regulation, and operational efficiency (i.e. a proxy for frontier markets) are not included. The index is weighted by float-adjusted market capitalization and rebalanced quarterly.
The fund comes with an expense ratio of 0.11% which matches the cost of the $3bn SPDR Portfolio Emerging Markets ETF (SPEM US). The two largest emerging market ETFs are the $50bn Vanguard FTSE Emerging Markets ETF (VWO US) and the $45bn iShares Core MSCI Emerging Markets ETF (IEMG US), both of which come in at 0.14%.
The BNY Mellon Core Bond ETF (BKAG US) tracks the Bloomberg Barclays US Aggregate Total Return Index and comes with an expense ratio of 0.00%.
The index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-backed securities, and asset-backed securities.
The fund’s largest competitors are the $70bn iShares Core US Aggregate Bond ETF (AGG US) and the $50bn Vanguard Total Bond Market ETF (BND US), both of which come with expense ratios of 0.04%.
The BNY Mellon Short Duration Corporate Bond ETF (BKSB US) tracks the Bloomberg Barclays US Corporate 1-5 Years Total Return Index.
The index consists of fixed-rate, US dollar-denominated debt from corporate issuers worldwide. Bonds with a minimum issue size of $300 million and remaining maturities between one and five years are eligible for selection.
The fund comes with an expense ratio of 0.06% which matches the cost of the $15bn iShares Short-Term Corporate Bond ETF (IGSB US). The cheapest short-term corporate bond ETF is the $24bn Vanguard Short-Term Corporate Bond ETF (VCSH US) which costs 0.05%.
The BNY Mellon High Yield Beta ETF (BKHY US) tracks the Bloomberg Barclays US Corporate High Yield Total Return Index.
The index provides broad coverage of the fixed-rate, US dollar-denominated, high-yield corporate bond market. Securities from issuers domiciled in emerging markets are excluded.
The fund comes with an expense ratio of 0.22%. In contrast, the $18bn iShares iBoxx High Yield Corporate Bond ETF (HYG US) charges 0.49%.
Each new ETF has been seeded with $25 million AUM. The equity ETFs distribute income on a quarterly basis, while the fixed income funds distribute monthly.