5 Ridiculously Low-Cost ETFs

| September 5, 2018 | 0 Comments
low-cost ETFs

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Investors don’t need to incur expense ratios north of 0.15% for great ETFs

For investors that like inexpensive funds, index funds and exchange traded funds (ETFs) are the primary destinations. There are plenty of low-cost ETFs on the market today and with issuers showing a willingness to trim fees, it is likely more funds will be labeled low-cost ETFs in the future.

Data confirms investors’ affinity for low-cost ETFs. For several years, the top asset-gathering ETFs have been those with annual expense ratios of 0.20% — or $20 on a $10,000 position — or less. Some industry observers believe that is simply a matter of time before some low-cost ETFs eliminate annual fees altogether.

Even if it takes awhile for zero fee ETFs to arrive, there are still scores of low-cost ETFs for frugal investors to consider. In fact, a case can be made that investors do not need to incur expense ratios north of 0.15% to access any number of market segments via low-cost ETFs.

Here are 5 of the cheapest ETFs available today.

Ridiculously Low-Cost ETFs: SPDR Portfolio Large Cap ETF (SPLG)

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

There are a handful of low-cost ETFs that are ultra-low-cost. As in these funds have expense ratios of less than 0.04% per year. The SPDR Portfolio Large Cap ETF (NYSEARCA:SPLG) is one of those funds. The $1.63 billion SPLG offers a plain vanilla approach to domestic large-cap stocks. This low-cost ETF features a roster of 754 names with a weighted average market value of $219.80 billion.

With SPLG, investors should expect a low-cost ETF that acts a lot like the S&P 500. Over the past three years, SPLG has slightly outperformed the benchmark U.S. equity gauge with the same amount of volatility. SPLG’s largest sector weights and components, such as Apple Inc. (NASDAQ:AAPL) and Microsoft Corp. (NASDAQ:MSFT), are comparable to those found in S&P 500 tracking funds.

Year-to-date, SPLG is modestly outperforming the S&P 500. Investors have added over $931 million in new assets to this low-cost ETF this year.

Ridiculously Low-Cost ETFs: Schwab U.S. Large-Cap Growth ETF (SCHG)

Expense ratio: 0.04% per year, or $4 on a $10,000 investment.

Investors looking for low-cost ETFs that focus on a particular investment factor have ample options to consider. Generally speaking, the lowest of the low-cost ETFs in the space focus on growth or value stocks. That group includes the Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG), which is one of the cheapest growth ETFs available.

The $6.50 billion SCHG tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index and holds 403 domestic large-cap growth names. Traditionally, growth funds, low-cost ETFs or otherwise, are heavily allocated to the technology and consumer discretionary sectors. That is the case with SCHG as those two sectors combine for 54.7% of the fund’s weight.

SCHG is a low-cost ETF offering investors a liquid, cost-effective avenue to standard large-cap growth fare, such as Apple, Amazon.com Inc. (NASDAQ:AMZN) and Facebook Inc. (NASDAQ:FB).

Ridiculously Low-Cost ETFs: Vanguard Small-Cap ETF (VB)

Expense ratio: 0.05% per year, or $5 on a $10,000 investment.

No list of low-cost ETFs would be complete without at least one offering from Vanguard. A massive number of Vanguard funds qualify as low-cost ETFs. Typically, small-cap equity funds have higher fees than their large-cap counterparts, but there are plenty of low-cost ETFs tracking smaller stocks.

Enter the Vanguard Small-Cap ETF (NYSEARCA:VB), which is one of the most cost-effective small-cap ETFs in the U.S. A strike against VB is size. As in the median market value of the fund’s 1,400-plus holdings is $4.2 billion, which is well above the standard definition of small-cap.

On the bright side, that elevated market value may one reason why the price-to-earnings ratio on VB is lower than that of the Russell 2000 Index. Plus, VB has been less volatile than the small-cap benchmark over the past three years. This low-cost ETF devotes 45% of its combined weight to financial services and industrial stocks.

Ridiculously Low-Cost ETFs: SPDR Portfolio Aggregate Bond ETF (SPAB)

Expense ratio: 0.04% per year, or $4 on a $10,000 investment.

Fixed income funds are an important part of the low-cost ETF landscape. In many cases, the lowest of the low-cost ETFs in the bonds universe are broad, aggregate funds such as the SPDR Portfolio Aggregate Bond ETF (NYSEARCA:SPAB).

The $2.99 billion SPAB targets the widely followed Bloomberg Barclays U.S. Aggregate Bond Index. SPAB’s option-adjusted duration is 5.92 years, putting the fund in intermediate-term territory.

Aggregate bond funds like SPAB are usually heavily allocated to U.S. government debt. That is true with SPAB, which devotes over 65% of its combined weight to Treasuries and mortgage-backed securities.

Ridiculously Low-Cost ETFs: iShares Core MSCI International Developed Markets ETF (IDEV)

Expense ratio: 0.05% per year, or $5 on a $10,000 investment.

International equities are widely represented in the low-cost ETF universe, though investors should note the fees on ex-U.S. developed markets funds will usually be lower than emerging markets funds. The iShares Core MSCI International Developed Markets ETF (NYSEARCA:IDEV) is rapidly making its presence felt among international low-cost ETFs.

IDEV is just 18 months old and already has nearly $872 million in assets under management, making it one of the most successful ETFs to have launched in 2017. The fund follows the MSCI WORLD ex-USA IMI Index, which is an alternative to the MSCI EAFE Index because IDEV’s benchmark features exposure to Canadian stocks while the MSCI EAFE Index does not.

IDEV holds over 1,300 stocks and eight of its 12 largest geographic exposures are European countries, though Japan is the fund’s biggest geographic weight at 22.40%. IDEV could be a low-cost ETF for risk-tolerant investors to consider as valuations on ex-US developed markets stocks remain low relative to the S&P 500.

Todd Shriber owns shares of VB.


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