iShares Enters World's Cheapest ETF Portfolio

Best deal in the history of finance gets better.

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Reviewed by: Matt Hougan
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Edited by: Matt Hougan

Nothing I write about gets more attention than my “World’s Lowest-Cost ETF Portfolio.” It’s a simple portfolio, holding six ETFs offering the cheapest-available exposure to U.S. equities, international equities, emerging market equities, REITs, bonds and commodities.

When I started tracking the portfolio in 2008, the portfolio had a blended average expense ratio of just 0.16 percent a year. I thought that was amazing.

But it’s gotten cheaper every year, as the three-way fee war between iShares, Vanguard and Schwab for plain-vanilla exposure has pushed prices lower and lower.

iShares Undercuts Schwab

Earlier today, BlackRock lowered the fee on its iShares Core S&P Total U.S. Market ETF (ITOT | A-100) from 0.07 percent per year to just 0.03 percent, making it the cheapest U.S. equity ETF.

The move pushes ITOT into the portfolio, dislodging the Schwab U.S. Broad Market (SCHB | A-100), which charges 0.04 percent.

With the move, the all-in blended fee for the portfolio falls to just 0.079 percent per year—less than half of where it started more than six years ago.

Truly it is the best deal in the history of finance. Paying just $7.90 for every $10,000 invested, investors gain exposure to more than 4,000 stocks, 1,300-plus bonds, 40-plus countries, 17 commodities and a dozen currencies.

Here’s the portfolio in its current iteration:

Asset ClassWeightFundTickerExpense Ratio
U.S. Equity40%iShares Core S&P Total U.S. Market ETFITOT0.03%
Developed Markets Equity30%Schwab International Equity ETFSCHF0.08%
Emerging Markets Equity5%Schwab Emerging Markets EquitySCHE0.14%
Fixed Income15%Schwab U.S. Aggregate BondSCHZ0.05%
REITs5%Schwab U.S. REIT ETFSCHH0.07%
Commodities5%UBS E-TRACS DJ-UBS Commodity ETNDJCI0.50%
Total0.08%

 

Note to the ETF industry: If someone would just launch a commodity fund priced at 0.25 percent, we’d really be in business.

Despite representing just 5 percent of the total portfolio, the E-tracs DJ-Bloomberg Commodity Total Return (DJCI | C-48) accounts for the largest share of fees paid, totaling 30 percent of all fees in the portfolio.

Low-cost providers: Let’s get this done.


At the time this article was written, the author owned the following securities: IEMG, AGG, VTI, VEA. Contact Matt Hougan at [email protected].

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."