These affordable funds can perform.
Low fees aren’t the end-all be-all to fund outperformance — a more expensive fund can beat out a cheaper alternative. But broadly speaking, investors can do pretty well by simply targeting extremely low-cost ETFs across a number of various investment themes. The following list of cheap ETFs are not necessarily the best ETFs on the market. But they are among the cheapest, and they provide respectable returns compared to their peers and their benchmark indices.
Schwab U.S. Large Cap ETF (SCHX)
Yes, the Vanguard S&P 500 ETF (VOO) is the cheapest way to get exposure to the Standard & Poor’s 500 index at 0.05 percent in annual expenses. But if you’re simply aiming for the thrust of the S&P 500 — large-capitalization stocks — you can get that for 2 basis points cheaper in Schwab’s SCHX. SCHX tracks the Dow Jones U.S. Large-Cap Total Stock Market index and holds 734 securities. Top holdings look similar to any S&P 500 fund, with Apple (AAPL), Microsoft Corp. (MSFT) and Exxon Mobil Corp. (XOM) leading the way. They simply make up slightly less of the fund to accommodate the extra holdings.
Expenses: 0.03 percent, or $3 annually for every $10,000 invested
iShares Core S&P Total U.S. Stock Market ETF (ITOT)
Some investors would prefer an even more diverse collection of U.S. stocks — a broader swath of large-caps, as well as some mid- and even small-cap exposure. This “total” stock market exposure can be bought for a song via the ITOT, which holds more than 3,750 stocks, large and small. So you get your Apples and Microsofts … as well as $9 million molecular diagnostic testing company Great Basin Scientific (GBSN) and $6 million medical device firm Skyline Medical (SKLN). That said, large-caps still make up the heft of ITOT’s weight, and those small-caps will have little true effect on results.
Expenses: 0.03 percent
Schwab U.S. Aggregate Bond ETF (SCHZ)
The iShares Core U.S. Aggregate Bond ETF (AGG) is the most popular way to buy a broad-bond ETF portfolio, with some $41 billion in assets under management. But Schwab’s SCHZ actually undercuts AGG by 3 basis points, representing the cheapest bond exposure you can buy. SCHZ offers a fairly well-blended mix of Treasurys (40 percent), securitized debt (28 percent) and corporate (24 percent) debt. Effective duration, which helps determine vulnerability to interest rates changes, is 5.3 years — slightly longer than AGG. And SCHZ currently boasts a decent 1.81 percent SEC yield.
Expenses: 0.05 percent
Vanguard Small-Cap ETF (VB)
Vanguard’s VB is actually 1 basis point more expensive than Schwab U.S. Small-Cap ETF (SCHA), but the Vanguard small-cap fund’s track is good enough to deem it the favorite here. VB offers investors exposure to nearly 1,500 companies with an average market cap of about $3.1 billion, which certainly is on the upper fringe of the small-cap spectrum. It’s thick on financials (27 percent) and industrials (19 percent), and features stocks such as commercial/industrial real estate investment trust Duke Realty Corp. (DRE) and not-so-cleverly named ingredients company Ingredion (INGR) in its top holdings.
Expenses: 0.08 percent
Real Estate Selector SPDR Fund (XLRE)
Crazy as it sounds, there’s actually an utterly cost-free ETF on the market. Even crazier? There are two. Both the XLRE and the Guggenheim S&P 500 Equal Weight Real Estate ETF (EWRE) invest in REITs like Simon Property Group (SPG) and HCP (HCP). And both have implemented fee waivers to make them absolutely free — for a limited time. XLRE gets the nod for a few reasons, however, including its longer-lasting waiver (Jan. 31, 2017, versus Sept. 16, 2016, for EWRE), lower expenses after the fact (0.15 percent to 0.4 percent) and yield (2.7 percent vs 2 percent based on trailing payouts).
Expenses: Free (Includes 15-basis-point waiver through Jan. 31, 2017)
Fidelity MSCI Health Care Index (FHLC)
Fidelity doesn’t win the low-cost award in many areas, but it does stand out with its MSCI sector funds — the cheapest way to buy into any particular sector. One strong performer? Fidelity’s FHLC health care fund, which allows investors a simple way to invest in pharmaceuticals, biotechs, medical device makers, service providers and more — essentially, the various companies that will benefit from the aging of the baby boomer generation. FHLC is somewhat top-heavy in pharma, though, with Johnson & Johnson (JNJ), Pfizer (PFE) and Merck & Co. (MRK) comprising about 22 percent of the fund’s weight.
Expenses: 0.08 percent
Schwab International Equity ETF (SCHF)
Typically, the best way to get performance out of an international ETF is to either make shorter single-country bets or target high-dividend funds. However, if you’re just looking for broad-based exposure as a hedge against your U.S. positions, the SCHF is the lowest-cost way to go. SCHF invests in stocks from a number of developed countries such as Japan, France and Australia, and it has a very large-cap bent. However, roughly 40 percent of the fund is dedicated to just Japanese and U.K. stocks, so it’s not terribly balanced from a geographical perspective.
Expenses: 0.08 percent
Vanguard Long-Term Corporate Bond ETF (VCLT)
A blended basket of bonds like the SCHZ is a pretty conservative play that will provide a modest amount of income. However, if you can handle a little more risk, you can earn substantially more income. VCLT provides exposure solely to corporate bonds, which tend to be a little bit riskier than debt issued by the U.S. government. Moreover, these are longer-dated bonds, which tend to be much more sensitive to interest-rate changes than shorter-term debt. The reward? A nearly 4 percent SEC yield — double that of the SCHZ.
Expenses: 0.1 percent
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8 Cheap ETFs That You Won’t Regret originally appeared on usnews.com
