7 Bargain-Bin ETFs For Frugal Investors
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Practically everyone loves cheap ETFs. Here are some low-fee ideas for 2019
When it comes to ETFs, low fees do not always mean superior returns, but low fees do increase a fund’s ability to generate interest from investors. In terms of asset-gathering proficiency, the sweet spot among cheap ETFs is an annual expense ratio of 0.20% — or $20 on a $10,000 investment — or less.
Many of this year’s top asset-gathering funds are cheap ETFs and many of those products have fees of 0.10% or less per year.
ETF issuers are well aware of the potency of cheap ETFs, meaning investors should not be surprised to see another spate of fee cuts next year and new funds coming to market with attractive expense ratios. While domestic large-cap strategies often dominate the list of cheap ETFs, frugal investors can find plenty of inexpensive funds tracking smaller stocks, foreign equities and fixed income, among other asset classes.
Here are some of the best cheap ETFs to consider in the year ahead.
SPDR Portfolio Large Cap ETF (SPLG)
Expense ratio: 0.03% per year, or $3 on a $10,000 investment.
The SPDR Portfolio Large Cap ETF (NYSEARCA:SPLG) is one of five U.S.-listed ETFs that currently have annual fees of 0.03%. All of those funds are domestic large-cap or total market strategies. SPLG, which recently turned 13 years old, follows the SSGA Large Cap Index.
This cheap ETF holds nearly 760 stocks with a weighted average market capitalization of $178.70 billion, indicating this is a mega-cap fund. SPLG allocates nearly 22% of its weight to technology stocks while the healthcare and financial services sectors combine for over 27% of the fund’s weight. Long-term investors should expect SPLG to perform mostly inline with broader benchmarks, such as the S&P 500 or the Russell 1000 Index.
In other words, while SPLG is a cheap ETF, its low fee does not prevent losses when markets swoon as highlighted by the fund’s fourth-quarter loss of almost 16%.
SPDR Portfolio S&P 500 Value ETF (SPYV)
Expense ratio: 0.04% per year, or $4 on a $10,000 investment.
When introducing an investment factor, such as value or growth, investors should expect that an ETF will be slightly more expensive. However, there are plenty of cheap ETFs offering dedicated exposure to value or growth stocks and the SPDR Portfolio S&P 500 Value ETF (NYSEARCA:SPYV) is one of those funds.
More than a dozen cheap ETFs have annual fees of 0.04% and SPYV is one of those funds. There are multiple ETFs providing exposure to the S&P 500 Value Index and SPYV is the least expensive of that group.
Home to nearly 400 stocks, SPYV is indeed a cheap ETF, but that does not mean downside protection comes along with that low fee. After lagging growth stocks and funds by wide margins during most of the recent bull market, value funds, like SPYV, are facing another issue in the current environment: large weights to financial services and energy stocks. Those are the two worst-performing sectors in the S&P 500 this year and SPYV devotes over 29% of its combined weight to those groups.
iShares Core S&P U.S. Growth ETF (IUSG)
Expense ratio: 0.04% per year, or $4 on a $10,000 investment.
The iShares Core S&P U.S. Growth ETF (NASDAQ:IUSG) is one of the cheap ETFs offering investors exposure to growth stocks, a corner of the market that had been working well until the fourth quarter of this year.
The $5.28 billion IUSG follows the S&P 900 Growth Index and holds more than 500 stocks, giving it a fairly deep bench among growth funds. Growth funds, including IUSG, often feature significant weights to the technology, consumer discretionary and communication services sectors. This cheap ETF obliges with a combined weight of more than 50% to those three sectors.
Like the other funds highlighted here, IUSG is a cheap ETF, but when its respective strategy falters, investors are left with a cheap ETF that is declining in value as has been the case with growth stocks over the past 90 days.
Vanguard Mid-Cap Index ETF (VO)
Expense ratio: 0.05% per year, or $5 on a $10,000 investment.
No list of cheap ETFs would be complete without least a couple of Vanguard funds. As one of the low-cost leaders in the passive fund universe, Vanguard offers a slew of inexpensive index funds and cheap ETFs across multiple asset classes.
The Vanguard Mid-Cap Index ETF (NYSEARCA:VO) is one of the issuer’s contributions to inexpensive mid-cap ETF space. Mid-cap stocks and the related ETFs are often overlooked by investors, but low fees, such as the one offered by VO, can serve to get investors involved with this potentially potent corner of the equity market.
VO is less expensive than 95% of competing funds, according to Vanguard data. The rub here is that median market value on VO’s 365 holdings is $13.9 billion, putting it at the lower end of large-cap territory.
iShares Core MSCI International Developed Markets ETF (IDEV)
Expense ratio: 0.05% per year, or $5 on a $10,000 investment.
While it is still reasonable to expect higher fees on international funds, there are plenty of cheap ETFs offering exposure to ex-U.S. equity markets. The iShares Core MSCI International Developed Markets ETF (NYSEARCA:IDEV) is one of those products.
IDEV is also one of the newer entrants in the cheap ETF space, having debuted in March 2017. Still, this fund proves investors love cheap ETFs. IDEV has $1.20 billion in assets under management, making it one of the most successful ETFs to have debuted in 2017.
IDEV can be used as an alternative to funds that benchmark to the MSCI EAFE Index because this cheap ETF includes Canadian stocks among its geographic exposures. The MSCI EAFE Index does not. Japan and the U.K. combine for almost 39 percent of IDEV’s geographic weight.
Schwab Short-Term U.S. Treasury ETF (SCHO)
Expense ratio: 0.06% per year, or $6 on a $10,000 investment.
There are plenty of cheap ETFs in the fixed income universe and the Schwab Short-Term U.S. Treasury ETF (NYSEARCA:SCHO) is one of the best for investors looking to manage interest rate risk.
With the Federal Reserve having raised interest rates four times in 2018, short duration funds were popular destinations for bond investors. SCHO obliges with an effective duration of 1.93 years, explaining why the fund saw 2018 inflows of $1.95 billion, or more than its $3.80 billion in assets under management.
SCHO is one of the cheapest ETFs in the short-term bond fund space.
SPDR Bloomberg Barclays Corporate Bond ETF (CBND)
Expense ratio: 0.06% per year, or $6 on a $10,000 investment.
The cheapest ETFs in the bond space are usually funds focusing on U.S. government debt, but fund issuers continue bringing low fees to other fixed income arenas, including domestic corporates. The SPDR Bloomberg Barclays Corporate Bond ETF (NYSEARCA:CBND), which tracks the Bloomberg Barclays U.S. Corporate Bond Index, is one of the least expensive corporate bond ETFs on the market today.
CBND’s benchmark “is designed to measure the performance of the investment grade corporate bond market which includes publicly issued, investment grade, fixed-rate, taxable, U.S. dollar-denominated corporate bonds issued by U.S. and non-U.S. industrial, utility, and financial institutions,” according to State Street.
This cheap ETF holds nearly 1,000 corporate bonds with an option-adjusted duration of just over seven years. Looking ahead to 2019, the primary risk facing CBND and rival funds is the potential for a massive amount of corporate bonds currently rated BBB to be downgraded to junk status. CBND allocates 51.67% of its weight to bonds with BBB ratings, meaning over half the fund’s holdings reside one to three notches away from junk territory.
Todd Shriber does not own any of the aforementioned securities.
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Category: ETFs
