World’s Cheapest ETF Portfolio Gets Cheaper

May 30, 2017

Matt Hougan is CEO of Inside ETFs, a division of Informa PLC. He spearheads the world's largest ETF conferences and webinars.

Well, that didn’t take long.

Less than two months after ETF Securities shocked the commodity ETF world with the launch of a broad-based commodity ETF charging just 0.29% in annual fees, far below the standard 0.75% fee, newcomer GraniteShares has done one better, launching its new GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB), with a management fee of just 0.25% per year.

With its launch, COMB instantly earns a place in my World’s Cheapest ETF Portfolio, a diversified portfolio holding the lowest-cost ETF in each of six major asset classes. The portfolio provides exposure to more than 4,600 stocks in 47 different countries, over 3,100 bonds, dozens of currencies and 22 different commodities.

When I started tracking the portfolio in 2008, the blended fee was 0.16%; today, the fee is less than 0.06% a year (0.0585% a year, to be precise).

 

The World’s Cheapest ETF Portfolio
Asset Class Weight Fund Ticker Expense Ratio
U.S. Equity 40% iShares Core S&P Total U.S. Market ETF ITOT 0.03%
Developed Markets Equity 30% Schwab International Equity ETF SCHF 0.06%
Emerging Markets Equity 5% Schwab Emerging Markets Equity SCHE 0.13%
Fixed Income 15% Schwab U.S. Aggregate Bond SCHZ 0.04%
REITs 5% Schwab U.S. REIT ETF SCHH 0.07%
Commodities 5% GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF COMB 0.25%

 

No End In Sight To Fee War

The incredible decline in the cost of this portfolio is emblematic of the incredible decline in the cost for ETFs in general over the past 20 years.

While ETFs have always been low cost, one of the most powerful pieces of the ETF story is that they keep getting better over time. That’s because, all else being equal, a larger ETF will be more liquid, track its index better, have better tax efficiency and be lower cost than a smaller ETF. By comparison, the exact opposite is true of actively managed mutual funds, which suffer under the weight of their own success.

As the table below shows, the cost for accessing broad-based asset classes has declined by 67-88% since the first ETF covering that asset class launched. That’s an incredible statistic, and speaks to the often-overlooked scale benefits ETFs offer.

 

The Ever-Declining Cost of ETFs
Asset Class First ETF Earliest Found Fee Current Fee Current Asset Class Leader Fee Price Decline from Original
U.S. Equity SPY 0.16% 0.09% ITOT 0.03% 81%
Developed Markets EFA 0.35% 0.33% SCHF 0.06% 83%
Emerging Markets EEM 0.75% 0.68% SCHE 0.13% 83%
Fixed Income AGG 0.20% 0.05% SCHZ 0.04% 80%
Real Estate IYR 0.60% 0.45% SCHH 0.07% 88%
Commodities DBC 0.75% 0.75% COMB 0.25% 67%
Note: The original fees for ETFs are not easy to find. There is a chance that the “Earliest Fee Found” is not the actual original fee for these ETFs; in each case, I went back as far as I could in the records, but I’m not 100% convinced I got back to the original in each case. If you have documentation of the original fee that differs from any of these products, please let me know at [email protected].

 

A lot of people ask me if we’ve reached the end of the ETF fee war. My answer is always no. As assets continue to flow into the space, fees will continue to come down, and that will ultimately be good for all investors.

At the time of writing, the author held none of the securities mentioned. You can reach Matt at [email protected].

 

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