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!"
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Related content
-
Average Net Worth by Age: How Do You Measure Up?Financial advisors discuss the secrets to growing your net worth over time.
-
Three Charitable Giving Strategies for High-Net-Worth IndividualsIf you have $1 million or more saved for retirement, these charitable giving strategies can help you give efficiently and save on taxes.
-
Three Charitable Giving Strategies for High-Net-Worth Individuals
If you have $1 million or more saved for retirement, these charitable giving strategies can help you give efficiently and save on taxes.
-
The Wealth-Building Powers of Health Savings Accounts (HSAs)Health savings accounts could be the most underutilized wealth-building tool out there. Here’s who should use them and how to maximize their benefits.
-
Seven Ways to Be an Absolute Jerk as a LawyerHere's what law students need to know about damaging their relationships with other lawyers and judges and running up the bill for clients.
-
Stock Market Today: Stocks Are Positively Mixed to Open DecemberTechnology led the way Monday as two of the three main equity indexes closed higher.
-
The Best Retail Stocks to Buy This Holiday SeasonE-commerce is a growing trend, but most folks still prefer to shop in stores. That makes these dominant retail stocks worth a closer look.
-
One Good Way to Withdraw Retirement Assets (and a Bad One)Don't withdraw retirement assets haphazardly. Managing distributions intentionally can lower your taxes, conserve your wealth and reduce Medicare premiums.
-
What Is Capital Gains Tax Deferral?Spoiler alert: It's the secret weapon of savvy real estate investors. Here's how it works and details about the tools you need to do it.
-
Don't Leave Your Heirs an IRA Tax BombYour traditional IRA has served you well, but when your heirs inherit it, watch out. Consider some of these strategies to minimize their tax burdens.
