Brokers Free ETF Push Isn't Free For These Funds

Vanguard got the ball rolling a while back by saying it would not charge commissions on anything but leveraged exchange traded funds. That was good news for investors and since Vanguard is a private company, there was no ensuing fallout for equity holders.

However, the ante got upped in a big way earlier this week when Charles Schwab SCHW eliminated commissions on ETFs, options and stocks. TD Ameritrade AMTD followed suit, with E*Trade Financial ETFC joining the party on Wednesday.

For investors, savings are meaningful, but shares of the aforementioned brokers aren't reflecting that ebullience. As one example, shares of Charles Schwab are lower by nearly 13% just this week.

Here are some of the ETF's that are being pinched as Wall Street reassesses exactly how brokerage firms are going to generate profits going forward.

See Also: The Best Free Stock Trading Brokers

iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI)

The iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI has been ground zero among ETFs when it comes to this week's carnage in brokerage stocks for the simple reason that among ETFs tracking the financial services sector, IAI has some of the largest exposure to discount brokers.

For example, IAI allocates over 8% of its combined weight to Schwab and E*Trade and those are two of the fund's top 10 holdings. The other issue for IAI is that it devotes over 17% of its weight to Goldman Sachs GS and while that company's clientele differs from the Schwabs and E*Trades of the world, the stock is languishing, down almost 6% this week.

Invesco S&P 500 Equal Weight Financials ETF (RYF)

As an equal-weight fund, the Invesco S&P 500 Equal Weight Financials ETF RYF isn't excessively exposed to any one of its 67 holdings in particular, but the fund does allocate nearly a third of its weight to capital markets companies, meaning it has exposure to the “everything for free” theme permeating the brokerage business.

Schwab and E*Trade combine for less than 3% of RYF's weight, yet the fund is down more than 5% this week due in large part to its exposure to other brokerages and banks with brokerage exposure that may be forced into a no commission way of doing business.

That's one problem. Another is the slowing economy that could force the Federal Reserve to cut interest rates again, further depressing net interest margins for banks.

See Also: 'Zero Commissions Now A Reality': Wall Street Reacts To Broker Commission Cuts

SPDR S&P Capital Markets ETF (KCE)

Although the SPDR S&P Capital Markets ETF KCE is an equal-weight ETF and doesn't hold any of the aforementioned stocks among its top 10 components, the fund has been repudiated this week, tumbling 7.51%.

KCE devotes 45% of its weight to asset managers and custody banks and 31.67% to investment banks and brokers. KCE's brokerage exposure includes Schwab, Ameritrade and E*Trade as well as a stake in Interactive Brokers IBKR, a stock that has also been slammed this week.

Posted In: Sector ETFsShort IdeasTop StoriesTrading IdeasETFs