With the exchange traded funds industry continue to boom, various brokerage houses are racing to get in on the action.
A popular tactic for capturing ETF assets from registered investment advisors, financial planners and retail investors has been to offer menus of ETFs on a commission-free basis. Not only have brokers such as Charles Schwab (NYSE: SCHW), Fidelity and TD Ameritrade (NasdaqGS: AMTD) offered select ETFs to clients sans commissions, the firms have routinely boosted the number of ETFs clients can access without commissions.
In 2014, we examined Fidelity’s and Schwab’s commission-free ETF lineups in an effort to unearth some of the most well-known ETFs on each platform.
In September, Schwab added 65 from various issuers to Schwab ETF OneSource, bringing the number of commission-free offerings on the platform to 182. Seven ETF providers — ALPS, Direxion Investments, Global X Funds, IndexIQ, PIMCO, ProShares and WisdomTree (NasdaqGS: WETF) – joined OneSource. [Popular ETFs on Schwab OneSource}
Today, we highlight some of the well-known ETFs investors can access without commissions on TD Ameritrade.
Vanguard Dividend Appreciation ETF (NYSEArca: VIG)
Assets under management (AUM): $21.1 billion
Comment: TD Ameritrade clients can access VIG, the largest U.S. dividend ETF, commission-free. That is a nice bonus when considering VIG is also one of the least expensive dividend ETFs with annual fees of just 0.1%, making the fund less expensive than 91% of competing products.
VIG gained nearly 9% last year, which trailed the S&P 500, but the ETF has a cult-like following because it only includes stocks that have raised dividends for at least 10 consecutive years. Top 10 holdings include Dow components Johnson & Johnson (NYSE: JNJ) and Wal-Mart (NYSE: WMT).
TD Ameritrade also offers VIG’s stablemate, the Vanguard High Dividend Yield ETF (NYSEArca: VYM), commission-free.
Vanguard REIT ETF (NYSEArca: VNQ)
AUM: $26.5 billion
Comment: Another income investor favorite that does not require a commission, VNQ is the largest REIT ETF. As is the case with VIG, VNQ’s commission-free status is a bonus because the REIT ETF also charges just 0.1% per year. That makes is less expensive than 92% of rival REIT funds. VNQ was one of the top 10 asset-gathering ETFs in 2014 with inflows of over $4.7 billion.
WisdomTree India Earnings Fund (NYSEArca: EPI)
AUM: $2.1 billion
Comment: Getting any international ETF on a commission-free basis is a treat for cost-conscious investors because these funds are usually pricier in terms of annual fees than their U.S. equivalents. That is particularly true of India ETFs, which are often pricier than other emerging markets single-country offerings.
EPI, the largest India ETF, is one of 31 intentional ETFs TD Ameritrade clients can access on a commission-free basis. It was also one of the top performers among intentional ETFs last year with a gain of nearly 28%.
PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC)
AUM: $4 billion
Comment: DBC is one of three commodities ETFs, including another one from PowerShares, that TD Ameritrade does not charge a commission on. DBC targets futures contracts that offer the highest implied roll yield.
SPDR Barclays High Yield Bond ETF (NYSEArca: JNK)
AUM: $9.6 billion
Comment: JNK, the second-largest junk bond ETF, is one of 33 fixed income funds TD Ameritrade does levy commissions. JNK is also the lone high-yield offering of that group.
High-yield bond ETFs can help diversify a portfolio. Junk bonds tend to be negatively correlated with government and aggregate bond portfolios. Additionally, high-yield debt may also hold up relatively well in a rising rate environment and provides a larger cushion against the negative effects of inflation. [Junk Bond ETFs for Portfolio Diversity]
iShares S&P 500 Value ETF (NYSEArca: IVE)
AUM: $8.6 billion
Comment: IVE’s value tilt does not mean the ETF is boring, which is highlighted by the fund’s nearly 25% weight to the financial services sector. While financials trade at a discount to the S&P 500, IVE allocates 14% of its weight to energy stocks, the sector currently former sporting the deepest discount to the benchmark U.S. index.
IVE also devotes a combined 18.2% of its weight to the consumer staples and discretionary sectors, the two groups trading at the largest premiums to the S&P 500.
Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC)
AUM: $1.1 billion
Comment: Emerging markets bonds denominated in local currencies have been a tricky-to-navigate asset class, but many developing countries have allocated high reserves, which help provide greater flexibility and better protection to their economies. Additionally, the strong economic growth, lower inflation and lower relative currency volatility has helped expand the local currency bonds market.
EMLC also compensates investors with a 30-day SEC yield of almost 5.9%. [Bond ETFs for Increased Income]
Vanguard Extended Duration Treasury ETF (NYSEArca: EDV)
AUM: $384.9 million
Comment: With an expense ratio of 0.12%, EDV is almost pricey compared to the other Vanguard ETFs highlighted on this list, but with an annual fee of 0.12%, the fund is still less expensive than 82% of rivals.
More importantly, EDV is coming off a year in which it gained 43%. Not only did that make EDV one of 2014’s best bond ETFs, but one of the top non-leveraged ETFs of any type. EDV holds Treasuries where the coupon has been stripped out, meaning the ETF and its high duration (almost 25 years) are sensitive to changes in interest rates. [Why These Bond ETFs are Surging]
Market Vectors Russia ETF (NYSEArca: RSX)
AUM: $1.5 billion
Comment: RSX on a commission-free basis softens the blow of what was a miserable 2014 for Russia ETFs. In December, Standard & Poor’s placed Russia’s sovereign debt on CreditWatch with negative implications, indicating Russia could lost its already tenuous grasp on its investment-grade credit rating. RSX, the largest Russia ETF, lost 47.2% last year. Only the United States Brent Oil Fund (NYSEArca: BNO) was worse among non-leveraged ETFs.
SPDR Dow Jones REIT ETF (NYSEArca: RWR)
AUM: $1.7 billion
Comment: RWR is another one of the three REIT ETFs TD Ameritrade does not charge a commission on. After soaring on the back of last year’s sanguine interest rate environment, REIT ETFs now look frothy on valuation. RWR, with a P/E ratio of 28.7, is no exception. Some may argue that rising interest rates ahead would pose a threat to the REITs space. Since REITs use debt to finance growth, rising rates would mean more expensive debt servicing and less dividends to payout to investors.