The fee landscape of U.S. exchange traded funds was materially altered earlier this week with the launch of the Salt Low truBeta U.S. Market Fund LSLT.
New York-based Salt's newest ETF will refund investors 50 cents for $1,000 invested in the fund until LSLT reaches $100 million in assets under management. That fee waiver is in effect until April 2020; then a traditional management fee of 0.29 percent per year, or $29 on a $10,000 investment, kicks in.
Low fees are commonplace in the ETF industry, and due to the array of challenges facing new ETFs, it is not surprising to see some issuers bring to market funds with paltry expenses.
Salt's fee strategy on LSLT is unique to the industry and the idea speaks to a problem that consistently vexes issuers of new ETFs: size begets size. A new ETF needs to reach certain size and volume marks to be included on brokerage platforms where advisers can buy the funds on behalf of clients.
Not reaching those platforms means some ETFs are reaching only a fraction of the total ETF audience and are potentially destined to be small for long periods of time.
Clearly, the new LSLT is employing an eye-catching fee structure, but there is more to the new ETF than just the fee gambit. LSLT tracks the Salt Low truBeta US Market Index and offers investors another alternative in the popular low volatility ETF space.
LSLT's selection universe starts with the 1,000 largest domestic stocks by market capitalization. Those names are filtered by 30-day average volume, with 500 stocks remaining after that filter is employed. All stocks with a “truBeta” score of 1.0 or higher are removed and the top 100 stocks ranked by beta variability are included.
LSLT's portfolio is then equally weighted. The fund is a departure from traditional low volatility ETFs. LSLT's underlying index has a 31.5-percent weight to the technology sector, and its third-largest sector weight is 15 percent to energy. In both cases, LSLT is significantly overweight those sectors relative to legacy low volatility ETFs.
At the start of March, LSLT had a lower price-to-earnings ratio and a higher dividend yield than the two largest domestic low volatility ETFs. Additionally, the ETF's turnover ratio is lower than rival funds, which provides another avenue for keeping investor costs low.
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