The Cheapest ETF Portfolio In London Gets MUCH Cheaper

Did you know you can access a broad and diversified investment portfolio for just 0.10% per year?

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Reviewed by: Matt Hougan
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Edited by: Matt Hougan

There’s never been a better time to be a European ETF investor.

The fee war continues to rage as providers slash headline charges, sharply driving down costs for the end investor.

How do I know?

Each year, ETF.com founder Jim Wiandt and I deliver the keynote address to the Inside ETFs Europe conference, the largest such event in Europe. For the past two years, I’ve used this opportunity to showcase something I call London’s Cheapest ETF Portfolio.

It’s a broadly diversified, aggressive portfolio, which holds the lowest cost ETF in each of six asset classes:

  • European Equities: 30%
  • U.S. Equities: 25%
  • Emerging Market Equities: 5%
  • UK Government Bonds: 30%
  • Commodities: 5%
  • Physical Gold: 5%

It’s modeled loosely on the portfolio I hold in my personal account, and is meant as a starting point for investors to measure their own portfolios against.

When I introduced the portfolio in 2014, the blended total expense ratio was 0.14% (0.138% to be exact).

London’s Lowest Cost ETF Portfolio – Circa June 2014

Asset Class

Weight

ETF

Ticker

TER

Eurozone Equity

30%

Db X-trackers EURO STOXX 50

XESX

0.09%

U.S. Equity

25%

Vanguard S&P 500

VUSA

0.09%

Emerging Markets Equity

5%

Amundi MSCI Emerging Market

AEEM

0.45%

Fixed Income

30%

Vanguard UK Gov’t Bond

VGOV

0.12%

Commodities

5%

Lyxor Commodities Thomson/Reuters Jefferies CRB TR

CRBL

0.35%

Gold

5%

iShares Physical Gold

SGLN

0.25%

All-In Costs

0.14%

 

At the time, I thought it was remarkable. For 0.14% per year, you could gain exposure to thousands of stocks, 40 different countries, more than a dozen currencies, a full slate of government bonds, more than a dozen different commodity futures, and an anchor in physical gold.  It’s the kind of portfolio a mid-size institutional investor would dream of, at a cost they would love, and it could be purchased by any individual investor or adviser, easy-peasy, on the London Stock Exchange.

I always expected the cost of this portfolio to fall over time as rising assets and increased competition drove down expenses. In the U.S., where the market is more established, my U.S. version of the portfolio now costs just 0.08% a year.

 

But I never thought I’d see prices fall as quickly as they have.  Because when I ran the European numbers for 2015, the blended expense ratio fell to just 0.10% (0.1035% to be exact).

London’s Lowest Cost ETF Portfolio – Circa June 2015

Asset Class

Weight

ETF

Ticker

TER

Eurozone Equity

30%

Db X-trackers EURO STOXX 50

Source Euro Stoxx 50

XESX

SX5S

0.09%
0.05%

U.S. Equity

25%

Vanguard S&P 500
Source S&P 500

VUSA
SXSP

0.09%
0.05%

Emerging Markets Equity

5%

Amundi MSCI Emerging Market

AEEM

0.45%
0.20%

Fixed Income

30%

Vanguard UK Gov’t Bond

VGOV

0.12%

Commodities

5%

Lyxor Commodities Thomson/Reuters Jefferies CRB TR

CRBL

0.35%

Gold

5%

iShares Physical Gold

SGLN

0.25%

All-In Costs

0.14%
0.10%


A 25% reduction in fees in one year!  That’s more than just a fee war: that’s a battle royale!

The reductions come thanks to Source’s aggressive pricing and a savvy fee cut by Amundi, which keeps them at the front of the market.  The Source products are synthetic products, but do not have swap fees, so the headline TER is a fair proxy for costs.

At 0.10% per year, this portfolio is an incredible deal.  And while it may not be the right portfolio for everyone, it does serve notice to all investors: If you haven’t looked at your core portfolio recently, it may be time to give it a refresher.  Fees are falling and you should take advantage.

Matt Hougan is CEO of Inside ETFs, a division of Informa PLC. He spearheads the world's largest ETF conferences and webinars. Hougan is a three-time member of the Barron's ETF Roundtable and co-author of the CFA Institute’s monograph, "A Comprehensive Guide to Exchange-Trade Funds."