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The popularity of ETFs for their transparency, diversity across asset classes and low fees has created a lot of competition between ETF providers to attract volume. One way ETFs attract volume is through a low expense ratio (ER).

The ER is the fee charged to manage your funds on a yearly basis, expressed as a percentage. While the ER is not the only factor to consider when investing in ETFs, a lower ER means you keep more of the generated profits, and pay less when you realize a loss.

Below is a list of the cheapest ETFs in the short/inverse, leveraged, and major asset categories; note that only ETFs in the top 100 by trading volume list are included, and as such, are intended for active investors who are looking to keep their trading costs to a minimum.

Major Asset Classes for Cheap

Stock Exchange Chart

There are many ways to diversify your holdings, and ETFs can help. Below we look at six major investment categories and the cheapest ETF for each.

  • Large Cap. U.S. Equity: S&P 500 ETF (VOO A) with an ER of 0.05%.
  • U.S. Sector: Select Sector SPDR ETFs for Energy (XLE A), Technology (XLK A), Consumer Staples (XLP A), Health Care (XLV A), Utilities (XLU A), Materials (XLB A), Financial (XLF A), Industrials (XLI A) and Consumer Discretionary (XLY A), all of which have an ER of 0.15%.
  • Non-U.S. Developed-Market Equity: Europe Pacific ETF (VEA A), tracking equity performance predominantly in Europe, Japan, Australia and Asia with a 0.09% ER.
  • Emerging-Market Equity: Emerging Markets ETF (VWO A), tracking the performance of equities predominantly in Asia, Latin America, Europe and Africa with a 0.15% ER.
  • Commodity: Comex Gold Trust (IAU A), tracking the price of spot gold with an ER of 0.25%.
  • Bond: Total Bond Market ETF (BND A+), tracking the performance of the U.S. investment grade bond market with an ER of 0.08%.

Get Leveraged for Cheap

Leveraged ETFs put your money to work “overtime”, increasing your profits or losses by a factor of two or three times what the underlying index would provide. Leveraged ETFs are often referred to as “ultras”, which are typically leveraged to two times, or “triples”, which are leveraged to three times the underlying index [see The Ultimate Guide To Leveraged ETFs].

Listed below are the cheapest leveraged ETFs in the U.S. Equity, Commodity and Volatility categories that active traders should consider.

  • U.S. Equity: Ultra S&P 500 ETF (SDS A), inversely moves twice as much on a daily basis as the underlying S&P 500 Index with an ER of 0.89%.
  • Commodity: Ultra DJ-UBS Crude Oil (UCO A), seeking twice the daily performance of the underlying Dow Jones UBS Crude Oil Sub-Index with an ER of 0.95%
  • Volatility: Ultra VIX Short-Term Futures (UVXY B-), seeking twice the daily performance of the underlying S&P 500 VIX Short-Term Futures Index with an ER of 0.95%.

Get Short for Cheap

Poor Stock Market Performance

Short or Inverse ETFs move in the opposite direction of the underlying index or asset, allowing traders to simulate a short position. If you believe a particular asset class will fall, such as U.S. equities, a commodity or volatility, then you could buy an inverse ETF as its value will rise if the price of the underlying asset declines [see also 17 ETFs For Day Traders].

  • U.S. Equity: Short S&P 500 ETF (SH A+), moving inversely to the daily performance of the S&P 500 index with an ER of 0.89%.
  • Commodity: UltraShort DJ-UBS Crude Oil (SCO A+) seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones-UBS Crude Oil Sub-Index with an ER of 0.95%.
  • Volatility: Inverse S&P 500 VIX Short-Term Futures ETN (XXV B+), moving inversely to the S&P 500 VIX Short-Term Futures Index with an ER of 0.89%.

The Bottom Line

The expense ratio is not the only factor to consider when trading ETFs, but it is an important one. ETFs with lower ERs take less of the profits away during the good years, and add less to your loss in unprofitable years. There are some very cheap ETFs, but it is quite possible they lack significant volume to allow for easy entry and exit; therefore, sticking to ETFs from the top 100 by trading volume list ensures adequate volume and generally significant assets under management, indicating that the fund isn’t likely to be dissolved any time soon.

ETFs have created multiple ways to diversify a portfolio and gain access to movement in global asset classes which, prior to several years ago, were difficult for individual investors to trade. Look to ETFs in varying asset classes, as well as leveraged and inverse ETFs to balance your portfolio, hedge positions or take advantage of both short- and long-term trading opportunities.

Disclosure: No positions at time of writing.

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