7 Really, Really Cheap ETFs
Fund fees are falling and these cheap ETFs are near the bottom in terms of low costs
There is no doubt about it. Passively managed index funds and exchange-traded funds (ETFs) are driving fund industry fees lower while saving investors billions of dollars in the process. Last year, investors paid record low fees, saving a tidy $4 billion along the way.
“The asset-weighted average expense ratio for active funds was 0.72% in 2017, down from 0.75% in 2016, and on the passive side, the asset-weighted average expense ratio was 0.15% in 2017, down from 0.16% in 2016,” reports Pensions & Investments.
Not surprisingly, data suggest ETF investors are flocking to the lowest-cost funds. Since the start of last year, ETFs with expense ratios of no more than 0.20% per year, or $20 on a $10,000 investment, have been attracting the bulk of ETF inflows. Within that group, funds with annual fees of 0.10% or less are the truly prodigious asset gatherers.
“Vanguard Group has the lowest asset-weighted average expense ratio at 0.1%, followed by State Street Global Advisors‘ SPDR ETFs at 0.16% and iShares at 0.25%,” according to Pensions & Investments.
These days, ETFs have gotten so inexpensive that investors do not even have to pay more than 0.04% per year for domestic equity or aggregate bond exposure. Here some of the cheapest ETFs on the market today.
Cheap ETFs: SPDR Portfolio Large Cap ETF (SPLG)
Expense ratio: 0.03% per year, or $3 on a $10,000 investment.
There are several ETFs trading in the U.S. sporting annual fees of just 0.03%, so there is a decent-sized group currently tied for the honor cheapest ETF — all of those funds offering broad market or large-cap exposure to U.S. stocks. The SPDR Portfolio Large Cap ETF (NYSEARCA:SPLG) is one member of that group.
SPLG led a relatively anonymous existence prior to State Street unveiling its core ETF suite last October. Today, SPLG has $1.2 billion in assets under management, nearly $432 million of which flowed into the fund in the fourth quarter and another $628 million has poured into the fund year-to-date.
This cheap ETF tracks the SSGA Large Cap Index, which is designed to capture 90% of the domestic equity market, and holds 766 stocks.
Cheap ETFs: Schwab US Broad Market ETF (SCHB)
Expense ratio: 0.03%
The Schwab US Broad Market ETF (NYSEARCA:SCHB) is another member of the 0.03% club. This cheap ETF tracks the Dow Jones U.S. Broad Stock Market Index. As its name implies, SCHB is a total-market ETF, so its selection universe is not confined to large-cap stocks.
Rather, SCHB features a massive bench of nearly 2,300 stocks. As a passively managed index fund, SCHB’s annual turnover is just 4%, which also helps keep costs low. The fund has slightly trailed the S&P 500 over the past three years despite sector allocations that are mostly in line with those of the benchmark U.S. equity gauge.
Frugal investors can realize additional costs savings with SCHB by trading it commission-free on the company’s ETF OneSource platform.
Cheap ETFs: Schwab U.S. Aggregate Bond ETF (SCHZ)
Expense ratio: 0.04%
The landscape of cheap ETFs is not confined to domestic equities. Broad bond ETFs have gotten progressively less expensive over the years, and one of the cheapest is the Schwab U.S. Aggregate Bond ETF (NYSEARCA:SCHZ). For the time being, SCHZ is one of just two aggregate bond ETFs charging less than 0.05% per year, but that could change at any moment.
SCHZ holds nearly 3,800 bonds, including “investment-grade, taxable bond market- including U.S. Treasuries, government-related and corporate bonds, mortgage pass-through securities, commercial mortgage-backed securities and asset-backed securities,” according to Schwab.
SCHZ has an effective duration of 5.95 years and a 30-day SEC yield of 2.7%.
Cheap ETFs: Vanguard Total Stock Market ETF (VTI)
Expense ratio: 0.04%
No list of cheap ETFs would be complete without some members of the Vanguard stable. Enter the Vanguard Total Stock Market ETF (NYSEARCA:VTI). Home to over $93 billion in assets under management, VTI is the third-largest U.S.-listed ETF and the largest that does not track the S&P 500.
Speaking of the S&P 500, VTI has slightly trailed that index over the past three years, but over that span, the Vanguard fund has topped the aforementioned SCHB, a direct VTI rival.
VTI holds nearly 3,640 stocks, giving this cheap one fund one of the largest rosters among domestic equity ETFs. The median market value of those holdings is $64.2 billion.
Cheap ETFs: SPDR Portfolio Developed World ex-US ETF (SPDW)
Expense ratio: 0.04%
Typically, international ETFs carry higher fees than domestic equivalents, but that does not mean international equity funds are all expensive. While fees on international ETFs are falling, the king of the low fee international ETF mountain, at least for now, is the SPDR Portfolio Developed World ex-US ETF (NYSEARCA:SPDW).
SPDW is an international ETF for conservative investors to consider because essentially all of its geographic exposure is allocated to developed economies. Overall, the ETF features exposure to 25 countries. SPDW can be used as an alternative to MSCI EAFE strategies and it is a credible alternative at that. This low-cost fund has outperformed the MSCI EAFE Index by nearly 200 basis points over the past three years.
SPDW holds nearly 1,600 stocks and allocates over 38% of its weight to Japan and the U.K.
Cheap ETFs: iShares Core S&P Total U.S. Stock Market ETF (ITOT)
Expense ratio: 0.03%
Investors willing to dwell in the expense ratio of 0.05% to 0.1% will find an array of high-quality iShares products spanning myriad asset classes. For the time being, the issuer’s cheapest offering is the iShares Core S&P Total U.S. Stock Market ETF (NYSEARCA:ITOT).
Like other total market ETFs, ITOT is a fine idea for cost-conscious investors looking for buy-and-hold investments and/or diversified exposure to domestic stocks. As a broad market play on U.S. stocks, ITOT is predictably heavily allocated to technology stocks.
A standard deviation of 10.4% and a trailing-12-month dividend yield of 1.75% put ITOT mostly in line with the S&P 500 based on those metrics.
Cheap ETFs: Schwab U.S. Large-Cap Value ETF (SCHV)
Expense ratio: 0.04%
Total-market ETFs are not the only equity funds that carry low fees. Investors can hone in on growth and value stocks on the cheap thanks to ETFs such as the Schwab U.S. Large-Cap Value ETF (NYSEARCA:SCHV). SCHV is one of several value ETFs with the nominal fee of 0.04%. Several growth ETFs also carry the same fee.
Value stocks have struggled against growth rivals for much of the current bull market. Perhaps that means there is value in the value factor, but only time will tell. However, historical data confirm that value stocks usually win in the long run and do so with less volatility than their growth counterparts.
This cheap fund reflects the current value landscape with financial services as its largest sector weight at over 20%. For the speculation that technology is overvalued, the sector does have some prominent spots in value ETFs. SCHV devotes almost 18 percent to large-cap tech stocks.
SCHV has outperformed the S&P 500 Value Index by 470 basis points over the past three years.
As of this writing, Todd Shriber does not own any of the aforementioned securities.
See Also From InvestorPlace:
- 10 Small-Cap Stocks With Large-Cap Potential
- 5 Great ETFs for the Second Quarter
- 9 Highest-Yielding Dividend Aristocrats to Buy Today
Category: ETFs
