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Pricing Wars Weigh on Broker ETFs

NEW YORK ( TheStreet) -- ETF Investors interested in online brokerages have two ways of gaining exposure to the industry, with iShares Dow Jones U.S. Broker Dealers Index Fund (IAI) the slightly better choice over SPDR KBW Capital Markets (KCE) right now.

IAI has a greater allocation than KCE to Internet broker companies, with 20.6% of the holdings of IAI falling into this category and 16.8% of KCE's. Although investors should note that these fund are hardly pure plays on Internet brokers, their allocation to the sub-sector is strong enough to influence the funds.

A big reason for the difference in online brokerage exposure between the funds is that KCE has no allocation to E*Trade Financial (ETFC - Get Report), while the company accounts for 3.6% of IAI.

Although small, the allocation to E*Trade contributed to IAI's recent underperformance of KCE. Year to date, ETFC declined by 15.3% and helped IAI fall by 9.5%, in comparison to KCE's decrease of only 8.5%.

The latest developments in the industry have been price cutting. E*Trade recently lowered its highest trading fees from $12.99 to $9.99 in the latest installment of an online brokerage price competition, a response to Fidelity's recent drop in its per-trade commission from $19.99 to $7.95. Although ETFC went up on the news of its own fee reduction, price wars are rarely constructive for the parties involved.

Customers may enjoy trading more freely with lower fees, but it could hurt the bottom line of online brokers and another round in this price war would not reflect well on these ETFs.
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KCE $38.48 -1.60%
IAI $37.01 -0.75%
AMTD $28.81 -1.64%
ETFC $24.86 -1.70%
SCHW $27.54 -1.64%


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S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

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