Exchange-traded funds (ETFs) just keep getting cheaper as the long-standing ETF fee war wages on. There have already been a spate of fee cuts year-to-date, boosting the number of cheap ETFs available to investors.
Fund titans such as Fidelity and Vanguard, along with Deutsche Bank, just to name a few, have lowered fees on ETFs this year. In the case of Vanguard, the company has a reputation for being a cheap ETF leader. For its part, Fidelity, still a relatively new entrant in the ETF business, has shown it is not afraid to challenge Vanguard on fees.
Then there is BlackRock Inc.‘s (NYSE:BLK) iShares unit, the world’s largest ETF issuer. While iShares has unparalleled heft and brand recognition in the ETF space, the firm is not always thought of as an issuer of cheap ETFs. However, that does not mean iShares has not been active participant in making ETFs more affordable to investors.
Several years ago, iShares launched its core lineup of ETFs, a suite of ETFs aimed at cost-conscious, long-term investors. There are now 24 core iShares ETFs, several of which are massive funds. For example, the $40.7 billion iShares Core U.S. Aggregate Bond ETF (NYSEArca:AGG) is the largest bond ETF in the U.S.
So while iShares is not known as the primary purveyor of cheap ETFs, the issuer has plenty of offerings for frugal investors, including the following funds.
iShares ETFs to Buy: iShares Core High Dividend ETF (NYSEArca:HDV)
Expense ratio: 0.12% per year, or $12 on a $10,000 investment.
The iShares Core High Dividend ETF (HDV) is not the least expensive dividend ETF on the market today, but with an annual fee of just 0.12%, HDV does meet the standards of a “cheap ETF,” and it is favorably priced relative to other dividend and smart beta strategies.
Fees — or lack thereof — are a nice selling point, but this iShares ETF is a credible option for dividend investors, particularly at a time of paltry bond yields. HDV sports a trailing 12-month dividend yield of 3.4%, or more than double the recent yield on 10-year U.S. Treasuries.
HDV, which tracks the Morningstar Dividend Yield Focus Index, is not directly positioned as a high-dividend ETF, but it has some of the hallmarks of high-dividend strategies, including a combined weight to high-yielding consumer staples, utilities and telecoms of about 38%.
Energy is HDV’s largest sector weight at nearly 20%, somewhat levering this ETF to oil prices. The bulk of this cheap ETF’s energy allocation is devoted to Exxon Mobil Corporation (NYSE:XOM) and Chervon Corporation (NYSE:CVX), the two largest U.S. oil companies.
iShares ETFs to Buy: iShares Core S&P Total U.S. Stock Market ETF (NYSEArca:ITOT)
Expense ratio: 0.03%
The total market ETF space is fertile ground for investors seeking cheap ETFs. Here, iShares, Schwab and Vanguard, among other issuers, battle for the title of cheapest U.S. ETF. iShares Core S&P Total U.S. Stock Market ETF (ITOT) is certainly a credible challenger on that front, and with an annual fee of just 0.03%, it is hard to imagine this iShares ETF getting much cheaper.
Any less expensive and investors could be treated to a fee-free ETF, and that is a debate for another article.
ITOT follows the S&P Total Market Index, giving investors exposure to 3,764 stocks. That is more than seven times the amount of stocks found in the S&P 500, but like other total market funds, it’s heavy on large and mega caps, ensuring its returns do wildly deviate from those offered by an S&P 500 index fund.
ITOT’s roster includes familiar names such as Apple Inc. (AAPL), Exxon Mobil and Microsoft Corporation (MSFT).
It is clear ITOT is a cheap ETF, but rather than be seduced by the low fees on this and other total market ETFs, investors should do a few minutes of homework prior to deciding which total market fund best fits their individual circumstances and objectives.
iShares ETFs to Buy: iShares Core MSCI Emerging Markets ETF (NYSEArca:IEMG)
Expense ratio: 0.16% per year, or $16 on a $10,000 investment.
A well-rounded portfolio should include some international exposure, with emerging markets being part of that equation. Enter the iShares Core MSCI Emerging Markets ETF (IEMG), which debuted in late 2012 as one of the original members of the iShares core lineup.
The aim was to give advisors and investors are lower-cost alternative to the popular iShares MSCI Emerging Markets ETF (NYSEArca:EEM). Nearly four years after coming to market, it is clear IEMG is not only cheap, but also a success. IEMG’s nearly $16 billion in assets say plenty of professional money has poured into this product, indicating that pros find IEMG’s fee more attractive than the 0.71% found on EEM.
As seasoned fund investors, cheap ETFs can work in their favor over the long-term. EEM is up just 0.4% over the past three years according to Morningstar, but IEMG is higher by 1.1% with much of that return differential attributable to the latter’s lower expense ratio.
IEMG is one of the least expensive members in the extensive stable of iShares international ETFs and devotes a combined 52% of its weight to China, South Korea and Taiwan.
At the time of this writing, Todd Shriber did not own any of the aforementioned securities.