The European ETF market grew in January by a record 46.9 billion euro. In the shadow of that growth, a price war is taking place: mainstream ETFs are now being offered with an expense ratio of 0.03 percent. Will Europe soon welcome the “free” ETF, as in the US?
“Free products do not exist.” Arnaud Llinas, operating partner at Blackfin Capital Partners and board advisor to data provider ETFbook, immediately dispels the illusion for bargain hunters. “A fund with a total expense ratio of 0 percent looks like a trick to me.”
The “trick” is that the provider generates revenue in another way. For example, through securities lending. Or the zero fee is used as a marketing tool to “get a seat at the table” with large institutions.
In the United States, the “free” ETF has been around for some time. On the data site etfdb.com, “Cheapest ETFs” is the most popular search screen, and this week it shows 34 ETFs with a TER of 0 percent. It includes quite a few crypto products, but also several old-school ETFs from established firms such as Fidelity, T. Rowe Price, and BNY Mellon. The latter offers the largest (5 billion dollar) “free” ETF with the BNY Mellon US Large Cap Core Equity ETF.
Investor protection
The same search for European ETFs (on justetf.com) yields only about fifteen gold and crypto products. Llinas is skeptical. “These are usually not Ucits ETFs, but ETCs or ETNs. They do not offer the same level of investor protection or supervision as standard funds that comply with Ucits requirements.”
The differences between the regulatory frameworks in the US and in Europe are one of the reasons why Europe will most likely never welcome a so-called free ETF, Llinas believed. “The price war is still ongoing, but with the 0.03 percent fee there now appears to be a floor in the European market,” he said. At that rate, investors looking for S&P500 and MSCI USA trackers can turn to firms such as State Street, UBS, Amundi, and Blackrock.
Waiving those last three basis points in fees would at most be possible in Europe as a marketing stunt, believes Philippe Roset, an ETF expert active in the industry since 2008. “Compliance costs for Ucits funds are higher than in the US, for example when drafting the prospectus,” he explained. “Moreover, the European market is fragmented. You are dealing with multiple currencies, multiple equity classes, multiple exchanges, each with costs for market makers, for example. The US, with its centralized market, makes it much easier to achieve large scale. ETFs with assets of hundreds of billions of dollars are not uncommon there.”
Dollar hedge
The European market is smaller and measures about one quarter of the US market, even though growth is significant. Amundi announced this week that January was a record month for Ucits ETFs, with inflows of 46.9 billion euro in new money. Llinas said: “European investors can now choose from more than 3,000 ETFs, including, for example, fifteen different ones tracking the MSCI World and twenty tracking the S&P500.”
Ucits equity ETFs, net new money January 2026 (billion euro)
But fragmentation therefore entails higher costs than in the US. Roset says: “A potential dollar hedge on a European ETF that tracks the US market also increases costs.” With securities lending providers are able to generate some additional income, Roset said, “but in many cases part of those revenues must also flow back to the investor.” In any case, he did not see how a provider in Europe could offer 0 percent fees: “Other than as a ‘loss leader,’ or as a temporary promotion.”