World’s Lowest Cost Portfolio Hits 0.05% Fee

October 19, 2017

State Street Global Advisors’ massive price cuts and low-cost ETF introductions this week have reset the bar in the ETF fee wars.

The firm recently announced the launch of a new SPDR Portfolio group of ETFs, firmly planting its flag in the middle of a price war it had hitherto avoided. The new Portfolio ETFs are each priced at or below their lowest-priced competitor.

The price cuts loft two ETFs into my World’s Lowest-Cost ETF Portfolio, which tracks the lowest-cost ETF in each of six major asset classes:

The combined fee on the portfolio is just 0.05%/year.

 

World’s Lowest-Cost ETF Portfolio
Asset Class Weight Fund Ticker ER
U.S. Equity 40% iShares Core S&P Total U.S. Market ETF ITOT 0.03%
Developed Markets Equity 30% Schwab International Equity ETF
SPDR S&P World ex-US ETF
SCHF
GWL
0.06%
0.04%
Emerging Markets Equity 5% Schwab Emerging Markets Equity
SPDR Portfolio Emerging Markets ETF
SCHE
SPEM
0.13%
0.11%
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%
COMBINED FEE 0.06%
0.05%

 

Three things stand out to me about the portfolio today.

First, it’s just an incredible deal. For 0.05% a year—five cents for every $100 you invest—you can get exposure to more than 6,000 stocks, 3,000 bonds, almost 50 different countries and every major commodity on the planet. It’s the kind of portfolio that a midsize institution would have dreamed of just a few years ago, and it’s available to everyone, essentially for free.

Second, it reflects the widespread nature of the ETF fee wars. There are now four issuers involved in my six ETF portfolio—BlackRock’s iShares, SPDRs, Schwab and GraniteShares. If you’re going to compete in ETFs these days, you need to have a low-cost offering.

Third, despite what you may read, my guess is that we’re not done yet. I’ve been tracking the World’s Lowest-Cost ETF Portfolio with the exact same rules and the exact same allocations since 2007. Since that time, the blended fee has fallen by about 1 basis point per year—almost like clockwork—from 0.16% when I started to just 0.05% today. There’s no real reason to imagine that will change anytime soon. 

 

 

There’s a lot of hemming and hawing in the industry about whether the ETF fee war is healthy for investors and the industry.

While there are things to worry about—the rise of ETF platform fees, liquidity and trading costs, market structure issues, etc.—let’s be clear: This is the best time to be an investor in the history of the world. For the first time, maybe ever, investors are paying fair fees and taking home the lion’s share of the market returns.

And that’s a very, very good thing.

At the time of writing, the author held no positions in the securities mentioned. You can reach Matt Hougan at [email protected].

 

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