With the wallet-heavy holidays just around the corner, now is a great time for investors to see just where they are spending their money. ETF expense ratios often go unnoticed by investors, assumed to be a necessary cost of playing the game, but many expensive ETFs have a cheaper competitor product. Whether you hope to find extra income for presents or maybe justify turning the heat up to 80 degrees, if investors are spending too much on ETFs with high expense ratios, they are losing money [for ETF industry news, sign up for the free ETFdb Newsletter].
Below we highlight five ETFs from various asset classes that should have appeal to cost-conscious investors. These ETFs all charge expense ratios that are considerably lower than their closest competitors, making them interesting options for those looking to take low costs to the extreme:
1. iShares COMEX Gold Trust (IAU)
- Expense Ratio: 0.25%
- ETFdb Category: Precious Metals
- ETFdb Category Average ER: 0.60%
Often at odds with GLD, IAU’s low expense ratio is a deciding factor for some investors. This physically-backed ETF boasts over 214 tonnes of gold in the trust and a total net assets of $12 billion. With an expense ratio of 25 basis points-GLD is 40 basis points–IAU costs significantly less than the average 60 points for a precious metals fund.
By tracking the spot price of gold bullion this fund has maintained some of the highest returns of the ETF industry since its inception in 2005. Between GLD and IAU, both have their own particular reasons to buy in, but for the cost-conscious investor IAU is the only option [also see 5 Best (And 5 Worst) ETF Performers Over the Last 5 Years].
2. Schwab U.S. Small Cap ETF (SCHA)
- Expense Ratio: 0.10%
- ETFdb Category: Small Cap Blend Equities
- ETFdb Category Average ER: 0.39%
With almost 20 funds to compete with, SCHA is not only different because of its low expense ratio, but also because at 13% it has some of the highest year-to-date returns of the category. It also helps that even with such great returns SCHA costs about half that of the other large funds that represent small cap equities.
By following a subindex of the Dow Jones Total Stock Market made up of stocks ranked 751-2500 by full market capitalization and being float-adjusted, this fund is constantly changing and adapting to the small cap industry. Offering equal weight coverage to all funds has also made SCHA’s market sector coverage very even, but there is a noticeable tilt to industrials, technology and consumer cyclicals.
3. Global X MLP ETF (MLPA)
- Expense Ratio: 0.45%
- ETFdb Category: MLPs
- ETFdb Category Average ER: 0.82%
MLPs were one of the hardest hit industries after President Obama’s reelection in November, as many investors feared this asset class would be subject to harsher tax codes in January, but this relatively small fund has lost little traction in the market. With the average number of assets for MLP ETFs at $957 million, in the past MLPA’s modest $15 million has made it one of the least popular options for investors [see MLPA Realtime Rating].
The index followed is intended to give investors a means of tracking the overall performance of the U.S. MLP class, with almost 90% of these funds falling in the energy industry, but there are also minority holdings in utilities and basic materials sectors.
4. Dow Jones-UBS Commodity Index Total Return ETN (DJCI)
- Expense Ratio: 0.50%
- ETFdb Category: Commodities
- ETFdb Category Average ER: 0.79%
DJCI isn’t the most popular exchange-traded product for investors looking to achieve exposure to commodities, but it should be appealing to the cost conscious among us. This ETN has about $70 million in assets and an annual expense ratio of only 50 basis points, which is considerably lower than its peer group–most broad-based commodity ETPs charge at least 0.75%, and some charge more than 1.0%.
DJCI offers exposure to a basket of about two dozen unique commodity futures, including precious metals, oil and gas, livestock and ags, and industrial metals such as nickel, lead, tin and zinc. This ETN is linked to the exact same index as DJP (which charges 0.75% annually), meaning it is almost guaranteed to outperform over the long run [see Free Report: Everything You Need To Know About Commodity ETFs].
5. Schwab U.S. REIT ETF (SCHH)
- Expense Ratio: 0.07%
- ETFdb Category: Real Estate
- ETFdb Category Average ER: 0.42%
One of the cheapest expense ratios of them all, Schwab went through all of its most popular funds at the beginning of 2012 and cut prices yet again to keep up with competition. This two-year-old fund is one of two real estate funds investors could get commission-free through Charles Schwab bank, the other being the much larger REIT ETF (VNQ), which charges 10 basis points.
Also focusing on the REIT side of real estate, this index is comprised of U.S. companies whose charters are the equity ownership and operation of commercial real estate. More than half of these firms are large cap, with the portions split between medium and small companies.
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Disclosure: No positions at time of writing.
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