The World’s Cheapest ETF Portfolio Just Got Cheaper
My “World’s Cheapest ETF Portfolio” tracks the lowest-cost ETF in each of six different asset classes: U.S. stocks, international stocks, emerging market stocks, bonds, REITs and commodities...[and it just got cheaper!]
Written by Matt Hougan (ETF.com)
...On Friday, ETF Securities launched...the ETF Bloomberg All Commodity Strategy K-1 Free ETF (BCI) and the ETF Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD) which both track diversified portfolios of 22 commodities and use an offshore structure to avoid issuing K-1s - and only have 0.29% per year in fees.
Further-Out Futures Contracts
Between the two, I’m choosing the longer-dated BCD for the portfolio. Rather than holding front-month futures as BCI does, BCD holds futures dated out four to six months in an effort to combat contango. I generally think this is a better approach for long-term investors.
In addition to the commodity swap, there’s big news in the developed-markets space. The iShares Core MSCI International Developed Markets ETF (IDEV) launched just 10 days ago and instantly took over the mantle as the cheapest developed-market ETF, with an expense ratio of just 0.07% a year.
The next-cheapest product—the iShares Core MSCI EAFE ETF (IEFA)—charges 0.08% a year, but notably excludes Canada from its portfolio. To get all-inclusive international developed-market exposure, you have to turn to the Vanguard FTSE Developed Markets ETF (VEA), priced at 0.09%.
Be Careful Trading New Funds
It’s worth noting that, as new funds, both BCD and IDEV barely trade. That will probably change over time as money tilts toward low-cost products, but for now, anyone trading those funds should do so using limit orders and extreme care. The portfolios are intended as a proof of concept, and the fees only capture the funds’ expense ratios, not the total cost of ownership. Still, what a proof of concept it is!
With the addition of BCD and IDEV to the portfolio—plus a number of expense ratio reductions for other products in the portfolio—the new blended expense ratio is just 0.06%. That’s down from 0.08% in 2015 and 0.16% when I started tracking it in 2008, an incredible deal for such a massively diversified, institutional-quality portfolio. It’s one of the greatest deals in financial history, and a symbol of the power of the ETF revolution.
The World’s Cheapest ETF Portfolio | ||||
Asset Class | Weight | Fund | Ticker | Expense Ratio |
U.S. Equity | 40% | iShares Core S&P Total U.S. Market ETF | ITOT | 0.03% |
Developed Markets Equity | 30% | iShares Core MSCI International Developed Markets ETF | IDEV | 0.07% |
Emerging Markets Equity | 5% | Schwab Emerging Markets Equity | SCHE | 0.13% |
Fixed Income | 15% | Schwab U.S. Aggregate Bond | SCHZ | 0.04% |
REITs | 5% | Schwab U.S. REIT ETF | SCHH | 0.07% |
Commodities | 5% | ETFS Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF | BCD | 0.29% |
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