Hector McNeil, the chief executive of HANetf and founder of ETF Securities, has described zero-fee exchange-traded funds (ETFs) as a gimmick that should be avoided.
He said zero-fee ETFs were a “misnomer” and investors would be “stung with hidden drawbacks”.
Last year Fidelity International launched zero-fee index funds in the US and McNeil said passive providers were increasingly reducing prices in a bid to undercut each other.
ETFs in the UK carrying fees of well below 10 basis points have become the norm, he said. But zero charges would put the investor at a disadvantage.
“It’s not good for the end consumer because price should only be one factor when making an investment choice. For example, while you may pay zero fees for one tracker, you may have to shift your money on to a specific platform, which could cost more money and leave you out of the market for a significant period of time.
“Furthermore, there is the risk that you may also then find you have a limited choice of other funds or products (assuming you do not only buy the single, zero-fee tracker).”
He further described zero-fees as a “gimmick to get people on to a given platform”.
Noting that zero-fee ETFs dated as far back as 2007 but were later “quietly dropped”, McNeil does not expect zero-fee ETFs to be received well in Europe should they be launched here because the market in passives is smaller.
“It will be harder for this to take root in Europe because it is more competitive here, with far more indices to monitor and focus on. The audience is also far less retail than the US.”
©2019 funds europe
