The reasons for the rise of the ETF industry are numerous: intraday liquidity, (potentially) superior tax efficiency, and enhanced transparency relative to traditional actively-managed mutual funds have all contributed to the billions of dollars of inflows that these funds have seen in recent years. But the real attraction for most ETF investors is the reduced expenses these products offer, often only a fraction of the fees charged by mutual funds.
But between ETFs, expense ratios can vary significantly, ranging from 0.04% (for several Schwab ETFs) to a whopping 2.32% (for the CANE actively-managed sugar ETF). For investors looking to minimize expenses and pursue an indexing strategy in favor of active management, investing in ETFs is only the first step. In order to assist cost-conscious investors, we’ve assembled the cheapest ETF options for almost every asset class and sub-asset class. [For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]
Each of the 900-plus ETFs currently included in the ETF Screener were allocated to a single “best fit” ETFdb Category (see a complete list of ETFdb Categories here). While ETFs in the same ETFdb Category generally share similar objectives and risk/return profiles, they aren’t necessarily perfect substitutes for each other. So the cheapest ETF may not always be best for accomplishing a given objective. But the impact of selecting low-cost ETFs for client portfolios can be material, resulting in significant dollar savings [see also Which Sector ETFs Are Cheap?].
Market Cap Equity ETFs
Funds from these ETFdb Categories are often core components of investor portfolios, increasing the importance of selecting ETFs that offer the best value. Many of these funds are also among the largest ETFs available, allowing issuers to offer extremely competitive expense ratios that often dip into the single digits.
- All Cap: In the broadest of equity ETFdb Categories, the Schwab U.S. Broad Market ETF (SCHB, 0.04%) narrowly beats the Vanguard Total Stock Market ETF (VTI, 0.06%).
- Large Cap Blend: With an expense ratio of just 4 basis points, the Schwab U.S. Large Cap ETF (SCHX) just edges out the S&P 500 alternative (VOO) which charges 0.05%.
- Large Cap Growth: The US Large-Cap Growth ETF (SCHG, 0.07%) is the cheapest option in this category.
- Large Cap Value: Again, Schwab’s US Large-Cap Value ETF (SCHV, 0.07%) is far cheaper than many other options.
- Mid Cap Blend: The US Mid-Cap ETF (SCHM, 0.07%) is once again the cheapest option in this category.
- Mid Cap Growth: The Vanguard Mid Cap Growth ETF (VOT) charges 0.10%.
- Mid Cap Value: Giving Schwab a run for its market cap domination, the Vanguard Mid Cap Value ETF (VOE) has an expense ratio of 0.10%, half of the next competitors.
- Small Cap Blend: This ETFdb Category features a tie between the Schwab U.S. Small Cap ETF (SCHA) and Vanguard Small Cap ETF (VB), both of which charge 0.15%.
- Small Cap Growth: The Vanguard Small Cap Growth ETF (VBK) takes this one with fees of 0.10%.
- Small Cap Value: With an expense ratio of 0.21%, the Vanguard Small Cap Value ETF (VBR) is the clear winner.
Sector Equity ETFs
For investors looking to tilt their portfolios towards (or away from) certain industries, sector ETFs are extremely popular. Given the more narrow focus of these ETFs, expense ratios are generally higher than broad-based market cap funds, but there are still plenty of bargains available. Sector ETFs are dominated by SPDR products from State Street and issuer Vanguard, due in part to the competitive expense ratios charged [download 101 ETF Lessons Every Investors Should Learn with a free ETFdb membership]:
- Alternative Energy: The S&P Global Clean Energy Index Fund (ICLN) and the S&P Global Nuclear Energy Index Fund (NUCL) share the spotlight with an expense ratio of only 0.48% each.
- Building and Construction: The SPDR Home Builders ETF (XHB) comes in at just 0.35%.
- Communications: The Telecom ETF (VOX) is half as expensive of any ETF in its category, charging only 0.19%.
- Consumer Discretionary: The Consumer Discretionary Select Sector SPDR Fund (XLY) comes in at just 0.18% with competitor Consumer Discretionary ETF (VCR) right behind at 0.19%.
- Consumer Staples: The Consumer Staples Select Sector SPDR Fund (XLP) also charges 0.18%.
- Energy: The Energy Select Sector SPDR Fund (XLE) is the winner here, again at 0.18%.
- Financials: Continuing the SPDR dominance, the Financials Select Sector SPDR Fund (XLF) comes in at 0.18%.
- Health & Biotech: The Health Care Select Sector SPDR Fund (XLV, 0.18%) edges out the Vanguard Health Care ETF (VHT, 0.19%).
- Industrials: The Materials Select Sector SPDR Fund (XLB) charges 0.18%.
- MLPs: The Global X MLP ETF (MLPA) charges 0.45%, half the rate of most of its competition.
- Technology: The Technology Select Sector SPDR Fund (XLK, 0.18%) edges out the Vanguard Technology ETF (VGT, 0.19%).
- Transportation: With an expense ratio of 0.34%, the newest fund to the category, SPDR S&P Transportation ETF (XTN) claims this category.
- Utilities: Finishing off the sector ETFs, the Utilities Select Sector SPDR Fund (XLU) comes at 0.18%.
International Equity ETFs
As more and more investors shift a larger portion of their assets away from domestic stocks and towards international equities, the dollar benefit of finding an international ETF with a low expense ratio has only increased. Due to the costs associated with purchasing foreign stocks, costs for international ETFs are generally higher than domestic funds. Moreover, the dispersion along the expenses spectrum increases significantly when moving into international ETFs.
- Asia Pacific Equities: With an expense ratio lower than many domestic equity ETFs, the Vanguard Pacific ETF (VPL, 0.14%) is the cheapest in this ETFdb Category.
- China Equities: The iShares MSCI Hong Kong Index Fund (EWH, 0.53%) is the cheapest in this ETFdb Category, while the SPDR S&P China ETF (GXC, 0.59%) is the cheapest ETF option for traditional China exposure.
- Emerging Market Equities: The Emerging Markets Equity ETF (SCHE, 0.15%) is by far the cheapest option.
- Europe Equities: With an expense ratio of 0.14%, the Vanguard European ETF (VGK) is the best way to get low cost exposure to Europe.
- Foreign Large Cap Equities: The Schwab International Equity ETF (SCHF, 0.09%) is one of the cheapest investment options in the whole ETF universe.
- Foreign Small & Mid Cap Equities: At 0.20%,the International Small Cap Index Fund (SCZ) is the cheapest fund offering exposure to international small and mid cap companies.
- Global Equities: A tie between Vangaurd funds, Total International Stock ETF (VXUS) and Vanguard FTSE All-World ex-U.S. ETF (VEU), both of which charge 0.18%.
- Japan Equities: The WisdomTree Japan Hedged Equity Fund (DXJ) charges just 0.48%, making it cheaper than many larger Japanese ETFs.
- Latin America Equities: The Direxion S&P Latin America 40 RC Volatility Response Shares (VLAT) offers exposure to the region at 0.45%.
Fixed Income ETFs
Fixed income investing is a critical component of any investor portfolio, and with relatively low expected returns on many ETFs, minimizing expenses is of the utmost importance. Expenses on fixed income ETFs can vary significantly, but there are a number of funds that offer excellent bargains.
- California Munis: The SPDR Barclays California Municipal Bond ETF (CXA) charges 0.20%.
- Corporate Bonds: The SPDR Barclays Capital Short Term Corporate Bond ETF (SCPB) smokes the competition by charging only 0.12%.
- Emerging Market Bond: The Market Vectors Renminbi Bond ETF (CHLC) has an expense ratio of just 0.39%.
- Government Bonds: Schwab’s Short Term U.S. Treasury ETF (SCHO, 0.08%) beats out a crowded field.
- High Yield: The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (XOVR, 0.30%) is the cheapest way to gain junk bond exposure.
- Inflation Protected Bonds: TIP may be the most popular, but Schwab’s US TIPS ETF (SCHP, 0.07%) is the cheapest in this category.
- Intermediate Term Bonds: The Vanguard Intermediate Term Bond ETF (BIV) comes in at just 0.14%.
- International Government Bonds: Three ETFs, the S&P/Citigroup International Treasury Fund (IGOV), the S&P/Citigroup 1-3 Year International Treasury Fund (ISHG) and the Euro Debt Fund (EU) all charge 0.35%.
- Money Market: The SPDR Barclays 1-3 Month T-Bill ETF (BIL, 0.14%) narrowly edges out its competitors.
- Mortgage-Backed Securities: The Vanguard Mortgage-Backed Securities Index Fund (VMBS) has an expense ratio of 0.15%.
- National Munis: The Market Vectors Short Municipal Index (SMB) charges 0.16%.
- New York Munis: The SPDR Barclays New York Municipal Bond ETF (INY) comes in at 0.20%.
- Preferred Stock/Convertible Bonds: With an expense ratio of 0.35%, the Invesco Convertible Securities Portfolio (CVRT) is the most cost-efficient option here.
- Total Bond Market: The Vanguard Total Bond Market ETF (BND, 0.10%) is the cheapestoption of total exposure.
The rise of the ETF industry has made the “fourth asset class” available to more investors than ever before. There are dozens of funds now available, including both resource-specific ETFs and diversified ETFs offering exposure to a basket of commodities.
- Agriculture: The Teucrium Agricultural Fund (TAGS) charges just 0.32% half of the next competition.
- Diversified Commodities: The DJ-UBS E-TRACS Commodity Index Total Return ETN (DJCI) charges just 0.50%, making it significantly cheaper than competitor DJP.
- Metals: The E-TRACS UBS Bloomberg CMCI Industrial Metals ETN (UBM) and the United States Copper Index Fund (CPER) both cost only 0.65%.
- Oil and Gas: With an expense ratio of 0.45%, the Unites States Oil Fund (USO) is the low cost option for oil exposure.
- Precious Metals: The Comex Gold Trust (IAU) has an expense ratio of just 0.25%, well below competing funds. For silver investors, the ETF Securities Physical Silver Shares (SIVR, 0.30%) is the cheapest option.
Real Estate and Currency ETFs
The cheapest real estate and currency ETF options include:
- Real Estate: At just 0.07%, the Schwab US REIT ETF (SCHH) is the cheapest way to add real estate exposure to a portfolio.
- Global Real Estate: The Global ex-US Real Estate Index Fund (VNQI) charges only 0.35%, while there’s a 4-way tie for second, as IFAS, IFEU, IFGL, and WPS which all charge 0.48%.
- Currency: The WisdomTree DreyfusJapanese Yen Fund (JYF) both charges 0.35%.
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