Two of the most prominent themes this year in the world of exchange-traded funds (ETFs) are investors flocking to ex-U.S. equity funds and the ongoing affinity for low-cost exposure.
Looking at this year’s top 10 asset-gathering ETFs, the one with the highest annual fee is the iShares MSCI EAFE Index Fund (ETF) (NYSEARCA:EFA), which charges a still reasonable 0.33% per year, or $33 annually on a $10,000 investment.
One of the primary reasons investors are widely embracing ex-U.S. markets this year is the hunt for value. Value meaning attractive earnings multiples and other valuation metrics, not necessarily low fees. With the bull market in U.S. stocks getting older by the day, investors are looking for alternatives to pricey U.S. equities. Those alternatives include familiar destinations such as Europe, Japan and emerging markets.
The good news for penny-pinching investors is that they can access developed and emerging markets stocks via an array of low-cost ETFs from some of the industry’s most well-known issuers. Consider some of the following cheap ETFs.
Cheap ETFs to Buy: iShares Core MSCI EAFE ETF (IEFA)
Expense Ratio: 0.08%, or $8 annually on a $10,000 investment
The aforementioned EFA is the largest ex-U.S. developed markets ETF and is, due its size and robust liquidity, likely to always have a following among institutional investors.
However, fees add up over the long haul, highlighting why the iShares Core MSCI EAFE ETF (NYSEARCA:IEFA) has developed its own enviable following.
With an annual expense ratio of just 0.08%, IEFA is one of the cheapest ex-U.S. developed markets ETFs on the market. This low-cost ETF follows the MSCI EAFE IMI Index, which is an offshoot of the MSCI EAFE Index. Aside from the lower fee, a noticeable difference between the EFA and IEFA is that the core ETF holds over 2,500 stocks while the old guard EAFE fund holds just over 900.
IEFA allocates over half its weight to Japan, the U.K. and France. This cheap ETF needed less than five years on the market to amass more than $31 billion in assets under management, proving some professional investors like cheap ETFs as well.
Cheap ETFs to Buy: Vanguard MSCI EAFE ETF (VEA)
Expense Ratio: 0.07%
It is almost impossible to not include at least one Vanguard fund on a compilation of cheap ETFs, so the Vanguard MSCI EAFE ETF (NYSEARCA:VEA) makes a well-deserved appearance here. Its annual fee of 0.07% makes it cheaper than 94% of rival funds, according to issuer data.
The aforementioned IEFA, EFA and the Vanguard FTSE Developed Markets ETF are locked in a notable battle this year for top honors among investors’ favorite ex-U.S. developed markets ETFs. Those three funds are three of this year’s top five asset-gathering ETFs.
In addition to low fees, another hallmark of Vanguard broad market ETFs is truly broad exposure and VEA does not disappoint with a roster of 3,820 stocks.
A notable difference between VEA and funds tracking the MSCI EAFE Index is that the Vanguard ETF features exposure to Canadian stocks. Canada is not part of the MSCI EAFE Index, but accounts for almost 8% of VEA’s roster.
Cheap ETFs to Buy: Schwab International Equity ETF (SCHF)
Expense Ratio: 0.06%
This cheap ETF follows the FTSE Developed ex-U.S. Index, a benchmark that is similar to the FTSE Developed All Cap ex U.S. Index followed by Vanguard’s VEA.
The Schwab ETF allocates over 45% of its combined weight to Japan, the U.K. and France and features a 7.6% weight to Canada.
On the surface, SCHF and its Vanguard rival appear highly similar, almost as though these two cheap ETFs are fraternal twins. Upon further examination, investors will find differences that lead to differences where it matters most: total returns. Over the last three years, SCHF has lagged its Vanguard rival by 170 basis points.
As of this writing, Todd Shriber owns shares of VEA.