Not only has a price war broken out among exchange-traded fund (ETF) issuers, as I wrote about a couple weeks ago. Now the brokerages are trying to out cheap each other in the race to convince you to trade with them. It’s gone so far that three of the major houses–Charles Schwab, Fidelity and Vanguard–are offering commission-free ETF trades.

Schwab is currently not charging commissions on its lineup of eight proprietary equity funds, including a broad US market fund, one small-cap and three large-cap US equity funds, and three international equity ETFs. All other online equity trades carry a commission of $8.95.

Fidelity offers commission-free trading in 25 iShares index funds, which includes a deep bench of US equity funds, four international equity funds and a handful of bond funds. All other online US equity trades cost $7.95.

Vanguard offers the most impressive ETF lineup of the three brokers. It offers 12 US bond funds, 27 US equity funds, including both style and sector offers, and seven international equity funds. Vanguard ETFs also offer the lowest average expenses, with the expense ratio of the broad market equity fund running at 0.07 percent and the total bond index carrying expenses of 0.12 percent. And your first 25 non-Vanguard ETF equity trades cost $7, bumping up to $20 on your 26th trade.

Vanguard recently upped the price war ante with its announcement that it will launch 19 new ETFs by the end of 2010.

If you’re a new ETF investor or aren’t happy with your current brokerage, Vanguard is by far the best option if you want to take advantage of commission-free ETF trading. The firm’s lineup of funds offers enough depth and breadth to build a well-diversified portfolio and is varied enough to support basic sector rotation strategies to add a bit of oomph to your total return.

The irony is that John Bogle, founder of Vanguard Group and the master of index investing, probably isn’t thrilled at the prospect of commission-free ETF trading. An avowed skeptic of active fund management, his biggest bone of contention with the industry is that active managers rarely earn the higher fees they charge.

He’s also firmly against any sort of trading; Mr. Bogle believes that investors generally have a poor sense of timing and tend to pay too much in costs. His idea is to build a well-balanced, diversified portfolio of index funds aimed at capitalizing on long-term market trends–and then take a hands-off approach.

I had the opportunity to interview Mr. Bogle a couple months ago for Louis Rukeyser’s Mutual Funds and was able to ask him about his views on the ETF industry. One of his biggest concerns was that fund investors might take advantage of the added flexibility of the ETF structure to try their hand at market timing–something he believes few, if any, investors do well.

Despite his displeasure, the fact is that we all try to time the market to some extent or another; being able to do it on the cheap is far and away the better option.

If you’re willing to stick primarily with Vanguard’s proprietary offerings–an all are solid funds in the areas they cover–it’s certainly the best pick of the bunch. You might do better setting up shop with one of the herd of discount brokers that offer rock-bottom commissions but provide little in the way of account service. And your investment options will be severely limited, too.

What’s New

Following closely on the heels of IndexIQ’s creation of a lineup of single-country small-cap funds, Global X Management Company launched Global X Brazil Mid-Cap ETF (NYSE: BRAZ) on June 22.

Brazil continues to draw the attention of many investors as debt worries continue to roil Europe and growth expectations in the US remain subdued. As the largest economy in South America and the eighth-largest in the world, its little surprise that many are looking for opportunities in Brazil.

Global X slid in to fill an interesting coverage hole that had developed for ETF investors. iShares MSCI Brazil Index (NYSE: EWZ) primarily holds giant-cap Brazilian companies, with almost two-thirds of assets devoted to materials and financials. Market Vectors Brazil Small-Cap ETF (NYSE: BRF) maintains heavy exposure to financials, though it also holds a big stake in consumer goods outfits. And there are two short funds focused on the country, leaving a gap in the mid-capitalization space.

Global X Brazil Mid-Cap ETF holds around 40 companies with market capitalizations between $2 billion and $10 billion. Despite being heavily tilted toward materials–something you’d expect from a fund tracking a resource economy–as of now it appears to be one of the best-diversified Brazilian funds, with heavy weightings in utilities, business services and consumer goods. It’s a great play on the broader Brazilian economy.

Keeping in mind that mid-cap companies are a bit riskier than large multinationals, with a reasonable expense ratio of 0.69 percent Global X Brazil Mid-Cap ETF is an excellent play on a less-trodden path.