The race to the zero-bound is on. That’s not an interest-rate policy development, but an investing fee trend.
Charles Schwab Corp /zigman2/quotes/201281754/composite SCHW +1.12% on Tuesday said it would no longer charge a commission on trades of U.S. and Canada-listed stocks, exchange-traded funds, and options, starting October 7.
That’s just the latest volley in the incredible shrinking broker fee war. Behemoth asset managers like Vanguard, Fidelity and Schwab have spent the past few years leapfrogging each other to offer lower and lower commissions .
That’s thanks in part to the rise in popularity of ETFs, funds that in most cases passively follow a pre-determined index, and charge much lower fees to do so, while also performing better than pricey active managers.
How miserly have investors become?
The largest and most-liquid ETF of all is also the world’s first: the SPDR S&P 500 ETF Trust. Over the past five years, according to data from CFRA Research, SPY /zigman2/quotes/209901640/composite SPY +0.55% has grown only 4.5% annually, while its rivals, iShares Core S&P 500 ETF /zigman2/quotes/204263249/composite IVV +0.53% and the Vanguard S&P 500 ETF /zigman2/quotes/201209218/composite VOO +0.50% VOO have galloped ahead, at 23% and 38% annual growth, respectively. All three passively track the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.45% , but SPY charges 9.5 basis points, IVV charges 4, and VOO asks only 3.
Industry analysts think the race to the bottom is just a matter of course, but stock-market investors seemed taken aback by Schwab’s announcement: the stock dropped 8% Tuesday morning, and rivals TD Ameritrade Holding Corp. /zigman2/quotes/207561492/composite AMTD +0.95% and E-Trade Financial Corp. /zigman2/quotes/205731930/composite ETFC +0.43% did even worse.