Like the ETF? Check Out the Cheaper Clone
Name-brand ETFs are offering lower-cost, higher-returning versions of their famous funds. For long-term investors, they might be a better deal.
There may be comfort in stocking your portfolio with large and well-known exchange-traded funds such as the nation's biggest ETF, the SPDR S&P 500 ETF Trust (SPY), or the soaring Invesco QQQ Trust (QQQ), which tracks the 100 largest non-financial stocks traded on Nasdaq. But you may not realize that you could be paying a little extra for such comfort – or that you have another choice.
Several name-brand ETFs offer lower-cost, higher-returning clones, nicknamed "mini-mes." Although informally named after the small sidekick of Dr. Evil in the Austin Powers movies, mini-me funds are heroes for investors, says Dan Sotiroff, a senior analyst for investment research firm Morningstar.
They have some drawbacks. For example, because they are newer and less liquid than their bigger siblings, there are fewer options contracts linked to them. And they trade less efficiently, carrying slightly wider spreads between the prices a buyer is willing to pay and a seller is willing to accept. But for long-term investors, "the mini is a better deal," says Sotiroff. Or, as Austin Powers would say: "Yeah, baby!"
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Cheaper versions of famous funds
Of course, many ETFs are index funds that attempt to replicate benchmarks such as the S&P 500. However, a true mini-me fund is an exact clone of a larger, well-established fund. A mini-me is managed by the same firm and holds the same portfolio but charges lower expenses and typically trades at lower prices.
Why are firms such as State Street, Invesco and BlackRock creating cheaper versions of their famous funds? They are trying to prevent their customers from switching to lower-cost competitors, explains Aniket Ullal, head of ETF data and analytics at CFRA Research. "The logic is that cannibalizing one's own product is preferable to losing share to a competitor," he says.
In addition, most of the mini-mes launched so far offer some additional profit opportunities for their fund sponsors. The mini-mes tend to be updated versions of older funds that were created before the Securities and Exchange Commission modernized rules for ETFs. Those original funds are technically trusts and have higher costs because they are legally barred from immediately reinvesting dividends received from stock investments, for example, or making money by lending securities.
See the table below (correct as of August 31, 2024) to compare five mini-me ETFs with their larger, original versions. Clones are highlighted in bold and located directly above the originals. N/A denotes the fund was not in existence over the entire period.
| Fund name | Symbol | Price | Expense ratio | One-year total return |
|---|---|---|---|---|
| SPDR Portfolio S&P 500 | SPLG | $64 | 0.02% | 27.1% |
| SPDR S&P 500 | SPY | $540 | 0.09% | 27.0% |
| Invesco NASDAQ 100 | QQQM | $187 | 0.15% | 27.1% |
| Invesco QQQ Trust | QQQ | $455 | 0.20% | 27.0% |
| SPDR Gold MiniShares | GLDM | $50 | 0.10% | 29.3% |
| SPDR Gold Shares | GLD | $231 | 0.40% | 28.9% |
| Grayscale Bitcoin Mini Trust | BTC | $5 | 0.15% | N/A |
| Grayscale Bitcoin Trust | GBTC | $46 | 1.50% | 98.7% |
| iShares Gold Trust Micro | IAUM | $25 | 0.09% | 29.3% |
| iShares Gold Trust | IAU | $47 | 0.25% | 29.1% |
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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