The old adage “you get what you pay for” is not always applicable in the world of investing. It certainly is not all that applicable when it comes to the best index funds and exchange-traded funds (ETFs). Issuers of these products are constantly lowering fees in an effort to attract more assets from investors.
October saw a flurry of fee cuts, underscoring the point that when it comes to the funds to buy, be it index funds or ETFs, there are plenty of passively managed, low-fee options to consider. For long-term investors, fees really do matter. Fees on ETFs and index funds are charged annually, so perhaps it is not surprising that many of the top index funds in terms of sheer size and, more importantly, long-term performance, are also among the least expensive funds.
Data suggest that when it comes to the funds to buy, investors are highly responsive to low fees. A massive percentage of this year’s best index funds in terms of new assets added have annual fees below a third of a percent, and within that group, many of the top index funds have yearly expense ratios of 0.1% or less.
Take a look at this sampling of the top index funds across various asset classes, all of which are sure to appeal to cost-conscious investors.
Best Index Funds for Thrifty Investors: Vanguard Small-Cap Value Index Fund (VSIAX)
Expense ratio: 0.07% per year, or $7 on a $10,000 investment.
The Vanguard Small-Cap Value Index Fund (MUTF:VSIAX), which tracks the CRSP US Small Cap Value Index, is a bargain among the best index funds that track a single investment factor, in this case the value factor. With an annual fee of 0.07%, for the Admiral share class, VSIAX is 95% less expensive than competing strategies, according to Vanguard data.
The rub with many of the top index funds is that a minimum investment is required. In the case of VSIAX, that minimum investment is $10,000. Capital-starved investors can consider the ETF equivalent of this top index fund, the Vanguard Small-Cap Value ETF (NYSEARCA:VBR), which carries the same fee as VSIAX with no minimum investment.
Small-cap value funds are among the funds to buy because small-cap value stocks are significantly less volatile than their growth counterparts and usually outperform broad small-stock benchmarks over the long haul.
VSIASX holds 850 stocks with a median market value of $3.7 billion, which actually puts the index fund at the lower end of the mid-cap spectrum.
Best Index Funds for Thrifty Investors: iShares Core MSCI International Developed Markets ETF (IDEV)
Expense Ratio: 0.07%, or $7 on a $10,000 position.
There is always room for new entrants into the land of the best index funds, and the iShares Core MSCI International Developed Markets ETF (NYSEARCA:IDEV) is well on its way to becoming a top index fund. Proving investors can quickly generate enthusiasm for a new low-cost product, IDEV debuted in late March and is already flirting with $94 million in assets under management, making it one of the most successful ETFs to launch in 2017.
IDEV tracks the MSCI WORLD ex USA IMI Index, which is a different alternative to the MSCI EAFE Index. IDEV’s benchmark includes Canadian stocks, whereas the MSCI EAFE Index does not. This new index fund holds over 1,200 ex-U.S. developed-market stocks, making it a fund to buy for investors looking for broad-based equity exposure to international markets at a time when U.S. stocks are looking pricey.
Despite its rookie status, IDEV is one of the top index funds when it comes to having rock-bottom fees, as only a few developed-markets ETFs are cheaper. Japanese and British stocks combine for 38.5% of IDEV’s roster.
IDEV is up 12.1% since coming to market.
Best Index Funds for Thrifty Investors: Fidelity Nasdaq Composite Index Fund (FNCMX)
Expense ratio: 0.3% per year, or $30 on a $10,000 investment.
For investors looking for exposure to the Nasdaq Composite Index, not just the Nasdaq-100, the Fidelity Nasdaq Composite Index Fund (MUTF:FNCMX) is one of the funds to buy. This index fund’s top 10 holdings combine for about 35% of its weight and include technology and internet titans, such as Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB).
Due to its heavy exposure to the technology and consumer discretionary sectors, FNCMX is considered a growth fund. Data suggest this an index fund to buy because FNCMX has a long-term record of outperforming the average growth fund, and by wide margins at that.
FNCMX carries a five-star Morningstar rating and has a minimum investment of $2,500. Investors that do not want to deal with that minimum can consider FNCMX’s ETF equivalent, the Fidelity NASDAQ Composite ETF (NASDAQ:ONEQ).
As of this writing, Todd Shriber did not own any of the aforementioned securities.