5 No- Or Low-Cost ETFs And Index Funds

| January 28, 2019 | 0 Comments
low-cost ETFs

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These low-cost funds are among the cheapest of the cheap

Low fees are one of the primary reasons why so many advisors and investors continue gravitating toward index funds and ETFs. Being mindful of the impact fund fees have on investors also explains why some fund issuers, like Vanguard, are revered by many investors.

There is a downside to all those low fees floating around in the index fund universe. Fortunately, that downside is not, at least not yet, being endured by investors. Rather, it is the fund issuers themselves that feel the effects of providing cheap products. Last year, 100 ETF issuers generated just $7 billion in revenue combined.

Additionally, some of the largest, publicly traded fund issuers have recently announced layoffs, including BlackRock Inc (NYSE:BLK), the largest ETF sponsor. That is the bad news. The good news is that low-cost funds are here to stay for a simple reason: those low-cost funds get investors in the fund issuers’ doors.

Currently, there are not any zero expense ratio ETFs, but some market observers believe it is just a matter of time before that happens. Still, there scores of low-cost funds for cost-conscious investors to consider.

Fidelity ZERO Large Cap Index Fund (FNILX)

Expense ratio: 0% per year.

While there are not yet any zero-fee ETFs, thanks to Fidelity there are several zero expense ratio index funds, including the Fidelity ZERO Large Cap Index Fund (MUTF:FNILX). This low-cost fund is one of four no expense ratio products introduced by Fidelity last year. Not only does this low-fee fund not have an expense ratio, it does not require a minimum investment and Fidelity clients can trade the fund commission-free.

FNILX “seeks to provide investment results that correspond to the total return of a broad range of large-capitalization U.S. companies,” according to Fidelity.

It is clear investors like the idea of low-cost fund that is actually a no-fee fund. FNILX debuted last September and already has nearly $228 million in assets under management. The fund holds 506 stocks and its top 10 holdings combine for almost 21% of its weight.

Technology stocks represent over 21% of the the fund’s weight while the healthcare and financial services sectors are FNILX’s next largest sector weights, giving the fund the look of an S&P 500 tracking fund.

Fidelity ZERO Total Market Index Fund (FZROX)

Expense ratio: 0% per year.

The Fidelity ZERO Total Market Index Fund (MUTF:FZROX) is one of the two original no-fee index funds in Fidelity’s stable. Like the aforementioned FNILX, FZROX is also available commission-free to Fidelity clients.

This Fidelity fund “seeks to provide investment results that correspond to the total return of a broad range of publicly traded companies in the US,” according to Boston-based Fidelity.

This low-cost fund debuted last August and rapidly proved the potency of eliminating fees. As of the end of 2018, FZROX had $1.70 billion in assets under management. The fund holds over 2,500 stocks and its top 10 holdings combine for almost 18% of its weight.

Fidelity ZERO International Index Fund (FZILX)

Expense ratio: 0% per year.

The Fidelity ZERO International Index Fund (MUTF:FZILX) joined FZROX as one of the original two Fidelity zero expense ratio index funds. Like its domestically-focused counterpart, the international FZILX is commission-free for Fidelity clients and is an indisputable hit with investors. The fund debuted last August and needed just five months on the market to eclipse $543 million in assets under management.

FZILX is a blend of developed and emerging markets with the latter representing over 20% of the fund’s weight. This low-cost fund is ideal for new investors looking for broad-based, cost-efficient exposure to international stocks. With a more than 38% weight to Europe, FZILX is also a solid idea for investors looking to take advantage of compelling valuations on European equities without the commitment of dedicated Europe index fund.

Japan and the U.K. combine for over 28% of FZILX’s geographic exposure. FZILX came to market at a time of struggles for international equities so its since inception performance is lackluster, but the fund is up 5.59% this year.

Fidelity ZERO Extended Market Index Fund (FZIPX)

Expense ratio: 0% per year.

The Fidelity ZERO Extended Market Index Fund (MUTF:FZIPX) is the fourth member of the Fidelity zero-fee index fund quartet. This low-fee fund is ideally paired with a large-cap heavy fund because it focuses on mid- and small-cap stocks. While there are plenty of low-cost funds offering exposure to smaller stocks, those funds usually feature slightly higher fees than large-cap counterparts, meaning FZIPX really stands out with no expense ratio.

FZIPX debuted in mid-September and grew to nearly $134 million in assets under management by the end of 2018. Like the other low-cost funds from Fidelity highlighted here, FZIPX is available to Fidelity clients with no trading fees.

FZIPX is home to over 2,000 stocks, giving it a deeper bench than many low-fee funds that focus solely on mid or small caps. Said another way, FZIPX basically excludes the S&P 500 from its roster.

Five sectors have double-digit weights in this low-fee fund. In order, those are financial services, industrials, technology, consumer discretionary and healthcare.

SPDR Portfolio Total Stock Market ETF (SPTM)

Expense ratio: 0.03% per year, or $3 on a $10,000 investment.

As was noted earlier, ETF issuers have yet to take any of their offerings down annual fees of 0%. Currently, the lowest annual fee available on US-listed ETFs is 0.03%. The SPDR Portfolio Total Stock Market ETF (NYSEARCA:SPTM) is one of five ETFs with that paltry expense ratio.

This low-cost fund follows the SSGA Total Stock Market Index and is designed to give investors exposure to 90% of the investable U.S. equity market. SPTM holds over 2,600 stocks, but even with that expansive roster, the fund tilts toward large caps as highlighted by a weighted average market value of almost $171 billion.

As is the case with many broad market funds, SPTM, on the surface, looks like a much different animal than an S&P 500 index fund or ETF. However, investors should expect significantly different returns between a low-cost fund like SPTM and the S&P 500 over longer holding periods. Over the past three years, SPTM is ahead of the S&P 500 by 70 basis points with the same annualized volatility.

Todd Shriber does not own any of the aforementioned securities.


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