What ETFs Really Cost

August 01, 2017

How much does it actually cost to own an ETF? The expense ratio is a good initial indication of a fund’s cost, but it only tells part of the tale.

The total cost of ownership of an ETF goes beyond that headline fee, and it can vary depending on your holding period. Here’s a rundown of factors that add up to the true cost of owning an ETF.

Expense Ratio

The expense ratio represents all the expenses of the ETF divided by assets. This metric includes all internal costs of the fund, such as items we sometimes see itemized in a prospectus, like the management fee, which is how much an issuer charges for its fund management services.

And the way it’s collected is not as an upfront fee at the time of purchase. The expense ratio is accrued daily in the net asset value calculation of the ETF, which makes timing crucial in the calculation. If you bought a leveraged ETF with a 2% expense ratio, but you only held it for a week, you’d pay less than 0.04% in fees, according to FactSet data.

 

The 10 ETFs With The Lowest Expense Ratios

ETFExplainerXLB

 

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The 10 ETFs With The Highest Expense Ratios

ETFExplainerXLB

 

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While the expense ratio is the “price tag” of any given ETF—the one metric often used to determine the cheapest option when comparing two similar funds—it offers an incomplete picture of the total cost of ownership.

 

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