Tuesday, February 21, 2012

Commission-Free ETFs now available from E*TRADE

E*TRADE recently rolled out commission-free trading of a select group of ETFs from Wisdom Tree, Global-X and Deutsche Bank (db-X funds).

No doubt, this is in reaction to a similar move that Charles Schwab made last year and that proved popular with investors and investment advisors alike.

In any case, this is good news for investors who happen to have an E*TRADE account. Not only does this reduce trading costs, it provides a wide-ranging set of ETFs that can be used to construct highly diversified portfolios. ETFs include target date funds, currency funds, numerous single-country and global ETFs and an interesting set of style-based ETFs. Examples of the styles available include dividend focused, earnings focused, small cap, mid cap and large cap and combinations of the above. The one drawback is that U.S. sector funds are largely absent. For example, there are no tech ETFs available.

The main question, though, is whether these ETFs are good investments. I can say that many of them, though not all, have performed well based on our proprietary trending indicator. I have set up a set of specialized pages at our sister site TradingStockAlerts.com that focuses solely on the commission-free ETFs. Here you can see what specific ETFs are included in the commission-free program and how they rank in terms of their current trending characteristics on a scale of 0 to 6 where 6 is most bullish. The data is compiled based on daily data and also on weekly data. You can find these pages under the "ETFs" main menu item at TradingStockAlerts.com but if you want to go directly to the pages you can use the links below.

To see how they rank in terms of their trend (bullish, bearish or in between):
Commission-Free ETF Scorecard based on Daily data
Commission-Free ETF Scorecard based on Weekly data

To see how the trend is changing for these ETFs use the following links:
Trend Score Changes based on Daily data
Trend Score Changes based on Weekly Data

I myself just bought the Global X FTSE Columbia 20 ETF (GXG). Using daily data, the ETF is rallying nicely and currently has a bullish trend score of 5.67 and it registered a nice improvement in trend in the last few trading sessions. Though it looks over-bought on the daily charts (and is probably due for some backing and filling), the weekly chart shows the ETF has just recently broken out above a downward sloping trend line and consequently looks to have further room to run. This is my first experience with one of these commission-free ETFs so we shall see how it plays out.

As appealing as commission-free trading may be, there are some caveats. To quote the E*TRADE web site: "Please note that sell short, buy to cover, and buy-write orders are not commission free. Options on ETFs and options-exercise-related transactions are also not eligible. For margin customers, the ETFs purchased through the commission-free ETF program are not margin eligible for 30 days from purchase date. To discourage short-term trading, E*TRADE Securities will charge a short-term trading fee on sales of participating ETFs held less than 30 days." The major takeaway here is that these ETFs are for position traders, not day traders.

So for all of you with E*TRADE accounts, I hope you find the pages listed above useful.

Disclosure: small position in GXG, no positions in any other ETFs mentioned in this post



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