World’s Cheapest ETF Portfolio Just Got Cheaper

April 04, 2017

[Editor’s Note: Due to a data error, an earlier version of this article suggested that the newly launched IDEV had taken over as the cheapest international developed-market equity ETF. In fact, the Schwab International Equity ETF (SCHF) remains the cheapest fund in that category, with an expense ratio of 0.06%. We apologize for the error, which has been corrected below.]

In November 2015, the last time I updated my World’s Cheapest ETF Portfolio, I laid out a challenge to the ETF industry: “If someone would just launch a commodity fund priced at 0.25%,” I wrote, “we’d really be in business.”

My portfolio tracks the lowest-cost ETF in each of six different asset classes: U.S. stocks, international stocks, emerging markets stocks, bonds, REITs and commodities—and the commodities fund always stuck out like a sore thumb. While I could get complete U.S. equity exposure for just 0.03%/year in fees, the cheapest commodity product out there charged 0.50%!

Not anymore.

On Friday, ETF Securities launched a trio of commodity ETFs including two priced at just 0.29%. The ETFS Bloomberg All Commodity Strategy K-1 Free ETF (BCI) and the ETFS Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD) both track diversified portfolios of 22 commodities and use an offshore structure to avoid issuing K-1s.

0.29% is not quite 0.25%, but I’ll take it!

Further-Out Futures Contracts

Between the two, I’m choosing the longer-dated BCD for the portfolio. Rather than holding front-month futures as BCI does, BCD holds futures dated out four to six months in an effort to combat contango. I generally think this is a better approach for long-term investors. 

Be Careful Trading New Funds

It’s worth noting that, as a new fund, BCD barely trades. That will probably change over time as money tilts toward low-cost products, but for now, anyone trading it should do so using limit orders and extreme care. The portfolio’s intended as a proof of concept, and the fees only capture the funds’ expense ratios, not the total cost of ownership.

Still, what a proof of concept it is. With the addition of BCD—plus a number of expense ratio reductions for other products in the portfolio—the new blended expense ratio is just 0.06%.

That’s down from 0.08% in 2015, and 0.16% when I started tracking it in 2008, an incredible deal for such a massively diversified, institutional-quality portfolio. It’s one of the greatest deals in financial history, and a symbol of the power of the ETF revolution.

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% ETFS Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF BCD 0.29%

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

 

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