Want to avoid trading costs on exchange traded funds (ETFs)? It's now becoming easier to do so.

This week, Fidelity teamed up with iShares to eliminate trading fees on more than two dozen popular ETFs. The move comes three months after Schwab introduced eight of its own free-trade ETFs.

Traditionally, if you wanted to invest in an ETF, you had to pay a sales charge each time you bought or sold shares. When Schwab rolled out free-trade ETFs in November it put pressure on other big brokerages to do the same.

And Fidelity has responded–in a big way.

Fidelity investors now can choose from among 25 popular iShares ETFs (compared with Schwab's eight). Examples include the iShares S&P 500 Index (IVV), iShares Barclays Aggregate Bond (AGG) and iShares MSCI Emerging Markets Index (EEM).

And collectively, the iShares ETFs offer sweeping coverage of the market, including emerging-market stocks and bonds, blue-chip U.S. stocks, Treasury Inflation Protected Securities (TIPS), and muni bonds.

To buy the iShares ETFs at no cost, you have to have an account with Fidelity and the trades must be done online. Go here to read the fine print.

But the bottom line is this: Until now, the sales charge on ETFs, which tend to carry lower annual fees than mutual funds, has dinged investors who make small but regular contributions to their portfolio.

Now, however, Fidelity and Schwab (and others soon, perhaps) are offering the best of both worlds: super-low annual fees "without paying the price of admission," as one Morningstar article put it.

To me, that sounds like a good reason to get in line for a ticket.

Update: Stung by a lawsuit from his former employer that reads like a soap opera script, star bond fund manager Jeffrey Gundlach responded Monday to some of TCW’s allegations in a letter to clients and business associates. As I wrote in a Saturday post about the dispute, TCW says it fired Gundlach after discovering he was planning to start a rival firm, taking with him client data and other confidential TCW documents. The lawsuit also describes Gundlach as erratic and egotistical, and says the company found marijuana and pornography in his office the day they fired him – further evidence, the company says, that Gundlach was unfit to manage other people’s money. Gundlach last week, in a statement, called TCW's claims "baseless" and  accused the firm of making "false and hyperbolic personal attacks" that were "a gratuitous and irrelevant gutter tactic."

Gundlach's Monday letter includes more details about his version of the story. Gundlach says that he had been concerned about TCW’s future since a year ago, when TCW’s owner, French bank Société Générale, indicated it wanted out of the money management business. He says he “explored avenues" to purchase the business himself but was rebuffed. He says he had begun to consider other options, adding that if he were to leave TCW, he had expected it would be a negotiated transaction. Though he doesn’t directly address TCW’s accusations of theft, he says TCW's lawsuit contains "innuendoes, smears and gross distortions."

Gundlach calls the pot-and-porn details in TCW’s lawsuit disturbing and an invasion of privacy. He says TCW not only searched locked drawers in his office in the company’s downtown Los Angeles headquarters but also a “small personal office” he kept in Santa Monica. Gundlach says he paid the rent and expenses for that Santa Monica office himself and had “every expectation of privacy in these spaces, which stored vestiges of closed chapters of my life.” (Last week Morningstar reported that Gundlach "stated that the contraband discovered by TCW did not belong to him and may have been left by a cleaning crew." I asked Gundlach's office to elaborate on the apparent discrepancy between the two accounts, but I haven't heard back. I'll update this post if and when I do.) Gundlach writes that TCW refused to allow him to collect his possessions, and the disclosure of them is a “transparent attempt to embarrass me and harm my business.”

A TCW spokeswoman responded Monday evening, "We believe the admissions in Mr. Gundlach's letter and the facts in the complaint speak for themselves."

Gundlach is moving quickly to get his new firm, DoubleLine Capital, up and running. He writes in the letter that he and his employees – more than 40 people followed him from TCW – have moved into a new Los Angeles office, put in place four bond teams and set up client accounts. “I assure you that I remain the worthy fiduciary in whom you have entrusted your investments over many years,” he writes. “Together with my team, I navigated the treacherous credit crisis markets and protected and grew your principal while others failed.” Gundlach, who had the title of chief investment officer at TCW, oversaw billions of investments at the firm, starting with the onetime $12 billion TCW Total Return Bond fund (TGLMX). That fund's assets have dropped to $6 billion since Gundlach's departure.

If Gundlach is worried that TCW's allegations might dissuade people from trusting DoubleLine with their money, those concerns are not unfounded. Customers of Gundlach’s three funds at TCW – investors ranging from pension funds to individuals — are evaluating what to do with their money. People like Michael Rosen, chief investment officer of Angeles Investment Advisors, haven’t decided yet what they’re going to do. Rosen, whose clients have about $100 million in TCW funds, said Monday he’s talked to folks from both DoubleLine and TCW, which bought the highly respected and experienced Metropolitan West Asset Management to take over TCW’s fixed income funds. If the story were simply that Gundlach had left, the decision to pull money out of TCW would be relatively simple, Rosen said. Bringing MetWest managers into the firm makes the decision tougher; his clients also have money with MetWest.

Morningstar’s director of mutual fund research, Russel Kinnel, noted Monday that the personal drama could very well keep customers away from both TCW and DoubleLine. “It probably just means more money to Newport Beach and Bill Gross,” Kinnel said, referring to Pimco, the investment firm founded by bond king Gross. “Pimco’s been raking it in already," said Kinnel, "and now they’re going to rake it in even more.”

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The TCW Total Return Bond fund (TGLMX) is one of the best bond mutual funds around. Under star manager Jeffrey Gundlach, the fund is in the top 1% of performers in its Morningstar category over the last five years, and it's among the top 2% over the last 10. But Gundlach’s ouster last month, details of a power struggle, and lurid allegations in a complaint filed by TCW have investors wondering what the heck they should do with their money.

First, the prurient details: Fund firm TCW accuses former chief investment officer Gundlach of stealing data, clients and employees in preparation for founding his own firm, called DoubleLine. Gundlach told Bloomberg he had proposed a management-led buyout in September and didn’t get a response. TCW’s complaint says Gundlach, along with other then-TCW executives now working with him at DoubleLine, surreptitiously downloaded data covering 24,000 clients and other trade secrets. The complaint also alleges Gundlach tricked TCW into paying for a private jet to fly him and seven other TCW employees to visit art museums in Texas under the guise of “team building”; in actuality, says TCW, Gundlach was building his renegade team.

It gets worse. Gundlach, who personally earned $134 million over the last five years while making stellar returns in mortgage-backed securities, demonstrated “unfitness to remain a senior TCW officer and fund manager,” the lawsuit says. TCW describes him as “erratic, increasingly and openly confrontational.” They say employees – and Gundlach himself – referred to him as "the Godfather" and "the Pope." The day TCW fired Gundlach, the lawsuit says, the company found marijuana and pornographic magazines and videos in his office. You can read the gory details of TCW's allegations in this complaint.

Gundlach’s DoubleLine, in a statement, calls the allegations “meritless … a blatant attempt to damage DoubleLine’s business and clients.” DoubleLine and Gundlach will be fighting back with their own suit; “the false and hyperbolic personal attacks by TCW,” says DoubleLine, “are obviously a gratuitous and irrelevant gutter tactic, which merely underscores the weakness of TCW’s claims.” Gundlach told Morningstar Thursday night that the contraband found in his office didn’t belong to him.

This kind of drama isn’t typical mutual fund news. But for investors in TCW funds, the situation is more than an unusually juicy dispute. The funds Gundlach oversaw were some of the best performing bond funds of the last few years, and many investors have come to TCW specifically to take advantage of his expertise. So now, should investors stick with TCW’s new management team, move their money elsewhere, or follow Gundlach to DoubleLine?

A key consideration for investors facing a management change at a fund they own is to what extent the fund’s success is based on the smarts of a single manager versus the investment approach of the entire firm. This can be nearly impossible for an individual investor to figure out, but what’s happening with TCW is far different than that, say, what happened at value investing firm Tweedy Browne, where senior adviser Christopher Browne passed away last month at age 62. Browne had already transitioned away from day-to-day management. And he left behind a large team of experienced managers steeped in a clearly laid-out investment philosophy.

At TCW, not only did Gundlach leave, but he took with him more than 40 investment professionals. These included Luz Padilla, who managed TCW Emerging Markets Income (TGEIX), plus two members of her investment team. That fund is among the top 2% in its category over the past three years, according to Morningstar.

Gundlach himself has long been a highly respected bond manager, but rose to particular acclaim in the last few years by making shrewd calls on mortgage-backed securities. He loaded up on government-backed issues like those of Fannie Mae, and he stayed away from subprime and the like throughout 2007 and 2008. Then, when the credit crisis sent all those fancy mortgage bonds into the toilet in 2008, he backed up the truck. Investors poured into TCW Total Return Bond, which is entirely mortgage-backed securities and had a 7.11% annualized return over the last 5 years. Gundlach also managed TCW Core Fixed Income (TGCFX) which ranked in the top 10% of its category for five and 10 years. Could someone who's "erratic" and "unfit" to invest other people's money achieve these results and persuade more than 40 co-workers to follow him to a new firm? Seems unlikely.

Gundlach’s expertise, plus the drama, have already led many TCW investors to flee. Reports have as much as $3.5 billion leaving the firm. But Gundlach himself, in a conference call after his firing, told investors there was no reason to leave the funds — that the portfolio was in good shape. (I hear he’s been singing a different tune since to larger investors, privately.)

It’s certainly true that TCW has replaced Gundlach and many of its team with experienced fixed income investors respected in their own right. TCW bought Metropolitan West Asset Management, which had its own $30 billion of assets under management (compared to $110 billion at TCW). While many have compared Metropolitan West Total Return Bond (MWTRX) with TCW Total Return and found it wanting, this is a bit unfair. The funds are different – MetWest’s is more diversified – and MetWest’s numbers are quite respectable, ranking among its category's top 10% of performers for three, five and 10 years. Says a TCW spokeswoman, “We believe we match skill for skill the capabilities of the previous fixed income portfolio management team.”

Morningstar analyst Eric Jacobson calls MetWest a “tremendously capable team” and says it doesn’t make sense for investors to knee-jerk yank their money out of TCW. That’s especially true if you hold the funds in a taxable account (and thus would have to pay taxes on any gains), and also true because, for now, you can't follow Gundlach; he doesn’t have funds available yet. “Taking your money out and putting it in cash, that’s not wise,” says Jacobson. Still, the lawsuit gives him some pause – will TCW and, for that matter, Gundlach, be distracted by the fight? The analyst thinks financial advisers may stay away from both firms just because the dispute feels messy.

Jacobson, I think, has it right. If you’re an individual investor who’s been using TCW funds to satisfy a particular fixed income slice of your portfolio, it's reasonable to sit tight. But given the soap opera this has become, you should watch the situation carefully and re-evaluate once DoubleLine introduces its offerings.

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Bill Gross knows bonds. When the Fed Reserve’s tea leaves need reading, Wall Street turns for interpretation to Gross, managing director of the $841-billion investment firm PIMCO. So it’s not just marketing bravado that the firm’s trademarked tagline is PIMCO….The Authority on Bonds.

Well, apparently the authority isn’t loving bonds so much these days. As reported in the trade journal InvestmentNews last week, Gross told a group of investors that he’s been adding dividend-paying stocks to his personal portfolio.

“You want to look for stability of income and growth,” Gross is quoted as saying. “That probably doesn’t mean bonds.”

Gross's comments, made at a September 30 luncheon in Costa Mesa, Calif., suggest a more pessimistic view of the bond market than the one in Gross's recently-published October 2009 investment outlook, an essay employing a particularly unpleasant metaphor — cleaning up after your dog's, um, leavings — to describe the economies of California, the United States and a few other developed nations. Gross's musings, entitled "Doo-Doo Economics," concludes that conditions warrant "a focus on high quality bonds and steady dividend paying stocks that can survive, if not thrive, in our journey to a 'new normal' economy." (It was PIMCO's CEO Mohamed El-Erian who posited PIMCO’s low-growth, tight-credit New Normal outlook this past May.)

Gross isn't the only person expressing caution about bonds lately. The "Heard on the Street" column in Monday's Wall Street Journal warns that the corporate bond market, up more than 14% this year, appears to be running out of gas.

All that might give pause to individual investors who have been piling into bond funds lately. Net new cash flow into taxable bonds funds stood at $175 billion through the first eight months of this year, compared to $70 billion for the comparable period in 2008, according to the Investment Company Institute. Muni inflows have doubled year-over-year.

Gross says he’s been purchasing shares of AT&T and Verizon for his personal portfolio. Their 6% dividend yield is about double what you can get on a 10-year Treasury right now. As Joe Light pointed out back in July, dividend payers aren't just an alterna-bond play; in today's more sober investing world they are expected to shine within the stock universe as well.