Best Of 2016: The Cheapest ETFs In The World

Competitive pressures have pushed ETF fees to once-unheard of-levels, which is a boon for long-term investors.

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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

[Editor's Note: We are rerunning some of our best stories from the year.]

The competition for assets in the ETF industry is fierce. There are all sorts of ways issuers attempt to woo investors into their products, but the most straightforward is fees. All else equal, the lower the expense ratio for a fund, the more attractive it is for investors.

For ETFs that track popular broad-based indexes, the rivalry among funds is especially intense. Every few months, there's news about an issuer cutting fees on an S&P 500 ETF product or an aggregate bond product to once-unheard-of levels.

According to FactSet data, there are now 98 ETFs on the market that cost 0.10% (10 basis points) or less per year to own. There are 261 ETFs with an expense ratio of 0.20% or less and a whopping 424 ETFs with an expense ratio of 0.30% or less.

Expense RatioNo. Of ETFs
0-0.1%98
0.11-0.2%163
0.21-0.3%163
0.31-0.4%224
0.41-0.5%316
0.51-0.6%182
0.61-0.7%201
0.71-0.8%168
0.81-0.9%106
0.91%-1%211
1%+109

 

Out of 1,941 total ETFs, the number of ETFs that can be considered "dirt cheap" is large and growing.

EEM: The Poster Child In Fee War

Investors aren't complaining. These low-cost ETFs are often some of the most popular products on the market. For example, 39 out of the top 50 ETFs in terms of assets have an expense ratio of 0.20% or less.

The other 11 remain popular largely due to first-to-market advantages or liquidity.

The poster child for this is the iShares MSCI Emerging Markets ETF (EEM | B-100), the first emerging markets ETF, which currently has $27.4 billion in assets. Once the only option for investors, it is quickly falling out of favor as investors flock to cheaper emerging market ETFs.

EEM's expense ratio of 0.69% is well above that of alternatives such as the Vanguard FTSE Emerging Markets ETF (VWO | B-96), with an expense ratio of 0.15%, or the iShares Core MSCI Emerging Markets ETF (IEMG | A-99), with an expense ratio of 0.16%.

Meanwhile, products such as the iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-68) and the iShares Preferred Stock ETF (PFF | B) target corners of the market where liquidity and transactions costs are higher, keeping expense ratios from falling more. HYG has an expense ratio of 0.5% and assets under management of $17.6 billion, while PFF has an expense ratio of 0.47% and AUM of $16.7 billion.

 

ETF Giants Usually Low Cost

All that said, ETFs such as EEM are the exception rather than the rule. Most of the ETF giants are extremely low cost, which is great for long-term investors.

As Matt Hougan, CEO of InsideETFs, often points out, an ETF investor can put together a well-diversified portfolio with exposure to all the major asset classes for next to nothing in fees―as little as 0.08% (8 basis points) according his last tally from November.

Today the world's cheapest ETF portfolio is even cheaper―at least temporarily.

Two REIT ETFs, the Real Estate Select Sector SPDR Fund (XLRE) and the Guggenheim S&P 500 Equal Weight Real Estate ETF (EWRE | D-85), currently have expense ratios of zero, as the funds absorb assets from their sister funds, the Financial Select Sector SPDR Fund (XLF | A-94) and the Guggenheim S&P 500 Equal Weight Financials ETF (RYF | A-84). This is being done to comply with Global Industry Classification Standard sector change, which splits REITs from the broader financial sector.

Fees for XLRE and EWRE will be waived until September, when they will increase, likely making the Schwab U.S. REIT ETF (SCHH | A-88) the low-cost leader when it comes to REIT ETFs once again, with an expense ratio of 0.07%.

As the table below shows, XLRE and EWRE are currently the lowest-cost ETFs on the market, followed by a number of ETFs from Charles Schwab, BlackRock (iShares) and Vanguard, with dirt-cheap expense ratios.

20 Cheapest ETFs

TickerFundIssuerExpense Ratio
XLREReal Estate Select Sector SPDR FundSSgA0.00%
EWREGuggenheim S&P 500 Equal Weight Real Estate ETFGuggenheim0.00%
SCHBSchwab U.S. Broad Market ETFCharles Schwab0.03%
SCHXSchwab U.S Large-Cap ETFCharles Schwab0.03%
ITOTiShares Core S&P Total U.S. Stock Market ETFBlackRock0.03%
VTIVanguard Total Stock Market Index FundVanguard0.05%
VOOVanguard S&P 500 Index FundVanguard0.05%
SCHZSchwab US Aggregate Bond ETFCharles Schwab0.05%
BNDVanguard Total Bond Market Index FundVanguard0.06%
SCHGSchwab U.S. Large-Cap Growth ETFCharles Schwab0.06%
SCHVSchwab U.S. Large-Cap Value ETFCharles Schwab0.06%
IVViShares Core S&P 500 ETFBlackRock0.07%
SCHDSchwab US Dividend Equity ETFCharles Schwab0.07%
SCHASchwab U.S. Small-Cap ETFCharles Schwab0.07%
SCHHSchwab U.S. REIT ETFCharles Schwab0.07%
SCHMSchwab U.S. Mid-Cap ETFCharles Schwab0.07%
SCHPSchwab US TIPS ETFCharles Schwab0.07%
IUSGiShares Core U.S. Growth ETFBlackRock0.07%
IUSViShares Core U.S. Value ETFBlackRock0.07%
AGGiShares Core U.S. Aggregate Bond ETFBlackRock0.08%

 

Investors can mix and match these ETFs and others to come up with their own diversified portfolio. Use the ETF.com screener and database to sort ETFs by expense ratio and a host of other categories.

Contact Sumit Roy at [email protected].

 

Sumit Roy is the senior ETF analyst for etf.com, where he's worked for 12 years. Before joining the company, Roy was the managing editor and commodities analyst for Hard Assets Investor. He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing pickleball and snowboarding.