Vanguard. Schwab. iShares. SPDR. All of these exchange-traded fund (ETF) giants undercut each other for years by putting out the cheapest index funds they could. All competed against each other in a so-called “race to zero.”
And all lost to the most unlikely of dark horses.
Upstart SoFi recently rattled the low-cost establishment by becoming the first provider to launch ETFs with zero annual expenses – and did so with the launch of its first two ETFs. (For the record, Fidelity introduced the first no-fee index funds in the mutual fund industry back in August 2018.)
The large-cap SoFi Select 500 ETF (SFY (opens in new tab)) and mid-cap SoFi Next 500 ETF (SFYX (opens in new tab)) joined the markets on Thursday, April 11. Each fund has a listed expense ratio of 0.19%, but SoFi will waive those fees through at least June 30, 2020. That clearly will make them the cheapest ETFs in their respective categories.
But it doesn’t cost much to invest in any corner of the market. A host of other categories feature index funds that, while not totally free, charge microscopic fees that make them extremely cost-efficient.
Here are 45 of the cheapest index funds in the U.S. ETF universe. These ETFs, listed by Morningstar category, cover stocks, bonds and other assets across a wide range of strategies.
Data is as of April 11. This list was created using provider data, as well as Morningstar data for the net expense ratio (which includes fee waivers) listed in each ETF’s most current prospectus. This list does not include ETFs that have been announced but not launched, and it does not reflect announced fee changes that have not yet taken effect. Not all Morningstar categories are represented here.
U.S. Large Blend
- Cheapest fund: JPMorgan BetaBuilders U.S. Equity ETF
- Expenses: 0.02%
JPMorgan Chase’s (JPM (opens in new tab)) JPMorgan Asset Management division – a mid-tier player in the ETF space at about $26 billion in assets under management – made a big splash in March when it launched the JPMorgan BetaBuilders U.S. Equity ETF (BBUS (opens in new tab), $52.01) – the cheapest U.S. large blend fund at just 2 basis points, undercutting titans such as the Vanguard S&P 500 ETF (VOO (opens in new tab)), iShares Core S&P 500 ETF (IVV (opens in new tab)) and SPDR S&P 500 Trust ETF (SPY (opens in new tab)).
BBUS currently holds a portfolio of 622 stocks that are primarily large-cap in nature (typically more than $10 billion), though it does include about 12% exposure to midsize companies (typically $2 billion to $10 billion) and a handful of small caps ($300 million to $2 billion).
Top holdings are similar to what you’ll find in S&P 500 trackers: Microsoft (MSFT (opens in new tab)), Apple (AAPL (opens in new tab)) and Amazon (AMZN (opens in new tab)) combine to represent about 10% of the fund’s weight (the percentage of the portfolio they represent).
Note: Morningstar listed the SoFi Next 500 ETF (SFYX (opens in new tab)) as a large blend fund at launch but listed no portfolio information. SFYX seems likely to be recategorized as a mid-cap growth fund. The ETF’s fund summary says the fund is “composed of 500 mid-cap U.S. companies,” and the index it tracks is growth-focused. We will update this list accordingly when more information is provided.
Learn more about BBUS at the JPMorgan provider site. (opens in new tab)
U.S. Large Growth
- Cheapest fund: Tie, iShares Core S&P U.S. Growth ETF, Schwab U.S. Large-Cap Growth ETF, SPDR Portfolio S&P 500 Growth ETF
- Expenses: 0.04%
There’s plenty of competition for the title of cheapest U.S. small value fund. The iShares Core S&P U.S. Growth ETF (IUSG (opens in new tab), $61.30), Schwab U.S. Large Cap Growth ETF (SCHG (opens in new tab), $81.29) and SPDR Portfolio S&P 500 Growth ETF (SPYG (opens in new tab), $37.80) each charge just 4 basis points, making them the cheapest index funds that offer exposure to a large set of growth stocks.
Each of these funds tracks slightly different indexes covering a broad range of large-cap stocks that exhibit growth characteristics, which can include earnings growth, sales growth and price momentum. The iShares product boasts the broadest portfolio at 538 holdings, versus 421 for SCHG and 295 for SPYG.
Note: Morningstar listed the Sofi Select 500 ETF (SFY (opens in new tab)) as a large growth fund in Morningstar. Like SFYX, SFY’s Morningstar portfolio page and provider fact sheet list no specific holdings. However, given fund summary and fact sheet descriptions, it seems likely to settle into this Morningstar category and supplant the aforementioned three funds as the cheapest large growth ETF. We will update this list accordingly when more information is provided.
U.S. Large Value
- Cheapest fund: Tie, iShares Core S&P U.S. Value ETF, Schwab U.S. Large-Cap Value ETF, SPDR Portfolio S&P 500 Value ETF
- Expenses: 0.04%
Once again, iShares, Schwab and SPDR are vying for top billing.
The iShares Core S&P U.S. Value ETF (IUSV (opens in new tab), $56.15), Schwab U.S. Large Cap Value ETF (SCHV (opens in new tab), $55.70) and SPDR Portfolio S&P 500 Value ETF (SPYV (opens in new tab), $31.00) are the cheapest ETFs in this category, with each charging just 4 basis points to invest in hundreds of large-cap value stocks.
Similar to the large-cap growth funds, each of these ETFs tracks slightly different indexes – this time focused on large-cap stocks exhibiting value characteristics such as low price-to-earnings and price-to-sales ratios. Again, iShares’ offering, at 679 holdings, is by far the most diverse portfolio, compared to 358 for SCHV and 383 for SPYV.
U.S. Mid-Cap Blend
- Cheapest fund: Schwab U.S. Mid-Cap ETF
- Expenses: 0.04%
At one point, Charles Schwab’s (SCHW (opens in new tab)) exchange-traded funds led a number of categories in lowest expenses, though a few of them have since been matched or undercut by the competition.
But Schwab still leads the way in a few categories, including the mid-cap space, via the Schwab U.S. Mid-Cap ETF (SCHM (opens in new tab), $56.90).
This index fund holds more than 500 mid-cap stocks with a weighted average market capitalization of about $7 billion. It features nice sector diversification, with six sectors – led by information technology, industrials and financials – enjoying double-digit weights. There is extraordinarily little single-stock risk, too. Top holdings such as Cadence Design Systems (CDNS (opens in new tab)), Keysight Technologies (KEYS (opens in new tab)) and Veeva Systems (VEEV (opens in new tab)) each account for a little more than half a percent of the fund’s assets.
Learn more about SCHM at the Schwab provider site. (opens in new tab)
U.S. Mid-Cap Growth
- Cheapest fund: Vanguard Mid-Cap Growth ETF
- Expenses: 0.07%
As mentioned earlier, it seems likely that SoFi’s new mid-cap fund SFYX will end up being slotted into this category, automatically making it the lowest-cost ETF in the space.
For now, however, Vanguard Mid-Cap Growth ETF (VOT (opens in new tab), $146.07) is the cheapest index fund for mid-cap growth.
VOT is a diversified but not particularly sprawling ETF at 169 holdings that display various growth characteristics. The fund is top-heavy in two sectors: industrials (25.9%) and technology (23.3%). Top holdings right now include architecture and construction software specialist Autodesk (ADSK (opens in new tab)), medical equipment company Edwards Lifesciences (EW (opens in new tab)) and financial-tech firm Fiserv (FISV (opens in new tab)).
Learn more about VOT at the Vanguard provider site. (opens in new tab)
U.S. Mid-Cap Value
- Cheapest fund: Vanguard Mid-Cap Value ETF
- Expenses: 0.07%
Vanguard also holds the mid-cap value crown, and at least at the moment, it faces no threat from SoFi.
- Vanguard Mid-Cap Value ETF (VOE (opens in new tab), $110.81) is a basket of more than 200 mid-cap companies that are classified as “value” stocks because of favorable readings in metrics including “book to price, forward earnings to price, historic earnings to price, dividend-to-price ratio and sales-to-price ratio,” according to its index.
Financials are the biggest weight at nearly a quarter of the portfolio. And despite the term “mid-cap,” many of the ETF’s top holdings are well-established names such as nationally known Clorox (CLX (opens in new tab)) and Royal Caribbean Cruises (RCL (opens in new tab)), and large regional presences such as utility FirstEnergy (FE (opens in new tab)) and East Coast bank stock M&T Bank (MTB (opens in new tab)).
Learn more about VOE at the Vanguard provider site. (opens in new tab)
U.S. Small Blend
- Cheapest fund: Schwab U.S. Small-Cap ETF
- Expenses: 0.04%
Small-cap stocks are beloved by growth investors because of their high upside potential. The thinking goes that it is much easier to double revenues from $1 million than $1 billion, and exhibiting that kind of growth should in turn result in outsize stock gains.
Tops among the cheapest index funds is the Schwab U.S. Small-Cap ETF (SCHA (opens in new tab), $71.81), which is the least expensive way to delve into the broader small-cap space. This ETF holds 1,750 stocks with a weighted average market cap of less than $3 billion. It also delivers decent sector diversification with five sectors represented at double-digit weightings, led by financials (17.9%) and information technology (15.4%).
While most of the holdings fall under consumers’ radar, there are a few familiar names in the top holdings, including handmade/vintage e-commerce specialist Etsy Inc. (ETSY (opens in new tab)) and discount retailer Five Below (FIVE (opens in new tab)).
Learn more about SCHA at the Schwab provider site. (opens in new tab)
U.S. Small Growth
- Cheapest fund: Vanguard Small-Cap Growth ETF
- Expenses: 0.07%
Not all small caps are in growth mode, however. Some companies simply have too much of a specialty to expand beyond a certain point and have reached something of a plateau.
Those looking for a cheap way to concentrate on just the growthiest small caps can look to the Vanguard Small-Cap Growth ETF (VBK (opens in new tab), $183.90). The index that VBK tracks classifies growth stocks based on several metrics, including “future long-term growth in earnings per share (EPS), future short-term growth in EPS, 3-year historical growth in EPS, 3-year historical growth in sales per share, current investment-to-assets ratio, and return on assets.”
VBK’s portfolio is roughly 625 stocks that is heavily concentrated in industrials (19.6%), health care (19.5%), technology (19.0%) and financials (17.0%). Top holdings include Burlington Stores (BURL (opens in new tab)), biotech Sarepta Therapeutics (SRPT (opens in new tab)) and manufactured-home REIT Sun Communities (SUI (opens in new tab)).
Learn more about VBK at the Vanguard provider site. (opens in new tab)
U.S. Small Value
- Cheapest fund: Vanguard Small-Cap Value ETF
- Expenses: 0.07%
You can indeed find value in the small-cap space.
- Vanguard Small-Cap Value ETF’s (VBR (opens in new tab), $132.54) tracking index looks at the same qualities as its mid-cap selection – metrics such as P/E and P/S. And in fact, the universe of small-cap value stocks is bigger than the growth side, with 863 stocks in VBR’s portfolio.
This stock is heavily clustered in a few sectors: Financials (34.3%) and industrials (20.4%) account for more than half the fund’s assets. Meanwhile, top holdings include the likes of single-tenant REIT W. P. Carey (WPC (opens in new tab)), fluidics systems specialist Idex Corp. (IDEX (opens in new tab)) and natural gas distributor Atmos Energy (ATO (opens in new tab)).
Learn more about VBR at the Vanguard provider site. (opens in new tab)
U.S. Sectors - ex-Real Estate
- Cheapest funds: Fidelity MSCI Sector Index ETFs
- Expenses: 0.08%
Morningstar has categories for each of the 11 Global Industry Classification Standard (GICS) sectors, and Fidelity offers the cheapest index funds for 10 of them:
- Fidelity MSCI Financials Index ETF (FNCL (opens in new tab), $38.85)
- Fidelity MSCI Consumer Discretionary Index ETF (FDIS (opens in new tab), $45.31)
- Fidelity MSCI Energy Index ETF (FENY (opens in new tab), $18.43)
- Fidelity MSCI Consumer Staples Index ETF (FSTA (opens in new tab), $33.76)
- Fidelity MSCI Health Care Index ETF (FHLC (opens in new tab), $44.07)
- Fidelity MSCI Industrials Index ETF (FIDU (opens in new tab), $38.94)
- Fidelity MSCI Information Technology Index ETF (FTEC (opens in new tab), $61.17)
- Fidelity MSCI Materials Index ETF (FMAT (opens in new tab), $32.54)
- Fidelity MSCI Communication Services Index ETF (FCOM (opens in new tab), $33.19)
- Fidelity MSCI Utilities Index ETF (FUTY (opens in new tab), $38.13)
Each of these funds holds a basket of stocks that includes only companies from within each sector. So the Fidelity MSCI Financials Index ETF, for instance, holds banks such as JPMorgan Chase (JPM (opens in new tab)) and Bank of America (BAC (opens in new tab)), insurers such as Berkshire Hathaway (BRK.B (opens in new tab)) and Chubb (CB (opens in new tab)), and investment management companies such as Goldman Sachs (GS (opens in new tab)) – all industries within the financial sector.
Learn more about Fidelity’s sector ETFs at the Fidelity provider site. (opens in new tab)
U.S. Sectors - Real Estate
- Cheapest fund: Schwab U.S. REIT ETF
- Expenses: 0.07%
The Schwab U.S. REIT ETF (SCHH (opens in new tab), $44.76) is the lone exception to Fidelity’s dominance of the sector space.
SCHH invests in real estate investment trusts (REITs) – a structure that was created in 1960 to allow people easier investing access to real estate. REITs own and often operate properties, and they enjoy special tax privileges on the condition that they pay out 90% or more of their taxable income back to shareholders as dividends. As a result, income investors are drawn to the sector.
The Schwab U.S. REIT ETF isn’t a particularly high yielder at 2.8% – the Vanguard REIT ETF, by contrast, yields 4.0% at the moment. But SCHH is the cheapest way to delve into the space, allowing investors to own the likes of mall operator Simon Property Group (SPG (opens in new tab)), logistics REIT Prologis (PLD (opens in new tab)) and self-storage leader Public Storage (PSA (opens in new tab)) for a relative song.
Learn more about SCHH at the Schwab provider site. (opens in new tab)
Foreign Large Blend
- Cheapest fund: SPDR Portfolio Developed World ex-US ETF
- Expenses: 0.04%
Anyone seeking out international diversification has been blessed by the collapse of fees in the foreign-stock space. One of the most crowded areas is foreign large blend, where there are numerous cheap index funds.
But the SPDR Portfolio Developed World ex-US ETF (SPDW (opens in new tab), $29.71) reigns as the current low-cost leader following an initiative two years ago to drastically slash expenses across several SPDR ETFs. SPWD previously was known as the SPDR S&P World ex-US ETF (GWL) and cost 0.34% annually; in October 2017, the fund was renamed and its costs were lowered to a bargain-basement 4 basis points.
Many of the funds in the foreign large-blend space are heavily invested in more economically developed countries like Japan, Australia and western European nations, though a few will hold emerging-market countries such as China and India. SPDW is predominantly exposed to developed markets, including large weights in Japan (23.0%), the United Kingdom (14.6%) and Canada (8.5%).
Learn more about SPDW at the SPDR provider site. (opens in new tab)
World Large Stock
- Cheapest fund: Vanguard Total World Stock ETF
- Expenses: 0.09%
Typically, if a fund’s name includes the words “world” or “global,” it means that it invests in both U.S. and foreign stocks, while “international” tends to mean exclusively ex-U.S.
The Vanguard Total World Stock ETF (VT (opens in new tab), $74.68), then, is a play on the U.S. and much of the rest of the world – and it’s the cheapest index ETF in its category.
For just $9 for every $10,000 you invest, Vanguard Total World Stock ETF plugs you into a massive portfolio of 8,109 stocks spread across 42 countries. American companies make up a little more than half the portfolio at a 54.5% weight. And while larger developed countries such as Japan, the U.K. and Canada get a lot of attention, VT has a little exposure to a number of smaller emerging markets such as the Philippines, Mexico and Qatar.
Learn more about VT at the Vanguard provider site. (opens in new tab)
Diversified Emerging Markets
- Cheapest fund: SPDR Portfolio Emerging Markets ETF
- Expenses: 0.11%
Developed-market funds typically offer more value-oriented blue chips from slower-growing economies. However, emerging markets – places such as China, India, Brazil and Thailand – typically boast much faster growth rates, and funds investing in EMs are more growth-oriented. The tradeoff? These economies and their stock markets can be much more volatile.
A way to spread out some of that risk is by investing in a diversified index ETF such as the SPDR Portfolio Emerging Markets ETF (SPEM (opens in new tab), $36.48).
SPEM holds nearly 1,550 emerging markets stocks (opens in new tab) in roughly 30 nations. China typically is a massive portion of EM-fund portfolios, and that’s the case with this ETF, which dedicates nearly a third of its assets to Chinese stocks. Taiwan (13.5%) and India (12.9%) are hefty players here, too.
Learn more about SPEM at the SPDR provider site. (opens in new tab)
- Cheapest fund: Franklin FTSE Hong Kong ETF
- Expenses: 0.09%
China’s GDP growth rate of 6.6% in 2018 was its slowest pace since 1990. But while it’s clearly not expanding like it used to, developed countries still have every reason to be chartreuse with envy over numbers like that. Consider that even with $1.5 trillion in tax cuts and a bevy of government spending in 2018, America’s GDP only improved by 2.9%.
China ETFs have unsurprisingly roared to the foreground over the past few years. But despite its dirt-cheap expenses, the Franklin FTSE Hong Kong ETF (FLHK (opens in new tab), $27.33) hasn’t quite caught on yet. The ETF made its public debut in November 2017, and has since amassed only $20.4 million in assets and trades just a few thousand shares daily.
That’s likely in large part because FLHK invests in Hong Kong companies. The 92-holding portfolio includes the likes of AIA Group (AAGIY (opens in new tab)), Link REIT (LKREF (opens in new tab)) and Hang Seng Bank (HSNGY (opens in new tab)). But that focus means it excludes high-profile growth plays such as Alibaba (BABA (opens in new tab)), JD.com (JD (opens in new tab)) and Ctrip.com International (CTRP (opens in new tab)), just to name a few.
Learn more about FLHK at the Franklin Templeton provider site. (opens in new tab)
U.S. Short Government Bond
- Cheapest fund: Tie, Schwab Short-Term U.S. Treasury ETF, SPDR Portfolio Short Term Treasury ETF
- Expenses: 0.06%
Bond investors also have benefited from the ETF fee wars.
The Schwab Short-Term U.S. Treasury ETF (SCHO (opens in new tab), $50.05) and the SPDR Portfolio Short Term Treasury ETF (SPTS (opens in new tab), $29.68) both attempt to track the Bloomberg Barclays U.S. 1-3 Year Treasury Bond Index.
When interest rates rise, the prices on existing bonds tend to fall as investors sell to buy into the better-rate bonds. But the shorter the length of the bond, the less such risk there is. Hence, short-term bonds are considered “safer.” Combine that factor with the fact that U.S. Treasuries are among the best-rated bonds as far as credit quality goes, and you have two dependable fixed-income funds.
The drawback is that the U.S. government doesn’t have to offer very high yields to attract investors into these uber-secure bonds. At the moment, both ETFs sport an SEC yield of 2.3%. (SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.)
U.S. Short-Term Bond
- Cheapest fund: JPMorgan BetaBuilders 1-5 Year U.S. Aggregate Bond ETF
- Expenses: 0.05%
The JPMorgan BetaBuilders 1-5 Year U.S. Aggregate Bond ETF (BBSA (opens in new tab), $25.12) launched in March, at the same time as the BBUS large-cap ETF, becoming the cheapest of all the index funds tackling the broader world of short-term bonds.
Funds such as BBSA can hold all kinds of debt. BBSA, for instance, does hold U.S. Treasuries – its top four holdings are all American debt, and make up more than half of the ETF’s weight. But it also holds corporate bonds, debt from other government agencies such as the Federal National Mortgage Association (Fannie Mae), even international bonds. The tie that binds all these fixed-income securities is a maturity of somewhere between one and five years.
BBSA currently has no listed SEC yield because of its relatively recent inception.
Learn more about BBSA at the JPMorgan provider site. (opens in new tab)
U.S. Intermediate Government Bond
- Cheapest fund: Tie, Schwab Intermediate-Term U.S. Treasury ETF, SPDR Bloomberg Barclays Mortgage Backed Bond ETF
- Expenses: 0.06%*
So far in this list, any time two or more index funds in the same category shared the same expense ratios, they were executing almost identical strategies. That’s not the case for the Schwab Intermediate-Term U.S. Treasury ETF (SCHR (opens in new tab), $53.45) and SPDR Bloomberg Barclays Mortgage Backed Bond ETF (MBG (opens in new tab), $25.73).
SCHR holds roughly 120 bonds, 99.9% of which are U.S. Treasuries, 99.9% of which have maturities of between three and 10 years. It’s still a very low-risk profile with an SEC yield of 2.4%.
MBG, on the other hand, invests in mortgage-backed securities (MBSes) – essentially, debt securities that are secured by bundles of mortgages. However, this index fund still qualifies as a U.S. Intermediate Government Bond fund because the debt is issued by government agencies – just not the U.S. Treasury. Instead, these MBSes are issued by the likes of Fannie Mae, the Government National Mortgage Association (Ginnie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). This basket of 520 holdings has an average maturity of 6.3 years, which is intermediate, but because the debt is more risky than Treasury notes, it has to compensate with considerably better yield. MBG offers an SEC yield of 3.1% at the moment.
* MBG’s expense ratio includes a 1-basis-point fee waiver through at least Oct. 31, 2019.
U.S. Intermediate-Term Bond
- Cheapest fund: Tie, Schwab U.S. Aggregate Bond ETF, SPDR Portfolio Aggregate Bond ETF
- Expenses: 0.04%
Schwab and SPDR also are tied for expenses on another pair of very similar products: The Schwab U.S. Aggregate Bond ETF (SCHZ (opens in new tab), $51.62) and the SPDR Portfolio Aggregate Bond ETF (SPAB (opens in new tab), $28.39), both of which track the Bloomberg Barclays U.S. Aggregate Bond Index.
The Bloomberg Barclays U.S. Aggregate Bond Index (often referred to as just the “Agg”) is the most prominent benchmark for bond funds, and it covers a wide swath of types and maturities of fixed-income instruments. Maturities range anywhere from one year to more than 30 years. The bonds range from U.S. Treasuries and agency bonds to government and commercial MBSes to corporate bonds and even foreign government securities.
That said, SCHZ and SPAB are about to be No. 2 among low-fee providers in this category. In early March, several outlets including Bloomberg (opens in new tab) reported that Vanguard filed to lower fees across several ETFs, including Vanguard Total Bond Market ETF (BND (opens in new tab)), which will be priced at 0.035%.
U.S. Long Government Bond
- Cheapest fund: SPDR Portfolio Long Term Treasury ETF
- Expenses: 0.06%
SPDR stands alone in the longer-dated government debt category.
The SPDR Portfolio Long Term Treasury ETF (SPTL (opens in new tab), $35.60) is a tight portfolio of 50 long-term U.S. Treasuries. The vast majority of these (93%) are 20 to 30 years in maturity, with another 4.5% in the 15-to-20-year range, and a mere 2.5% in the 10-to-15-year range.
This still is U.S. Treasury debt, so the risk is low from that perspective, but because much can change over the course of 10, 20 and 30 years, these bonds must provide a little more bang for a buyer’s buck. Hence, SPTL offers an SEC yield of 2.8%.
Learn more about SPTL at the SPDR provider site. (opens in new tab)
U.S. Corporate Bond
- Cheapest fund: Tie, 5 iShares ETFs, SPDR Bloomberg Barclays Corporate Bond ETF
- Expenses: 0.06%
U.S. corporate bonds tend to deliver more yield than Treasury debt because the risk is simply greater.
Treasuries enjoy the second-highest-possible debt scores from the major ratings agencies. Only two companies – Microsoft and Johnson & Johnson (JNJ (opens in new tab)) – have better-rated debt, at AAA. A few other companies are on par with Treasuries, but the vast majority are rated well below. That's OK. There are plenty of investment-grade ratings below U.S. debt.
The low-cost title for the corporate bond category is shared by six index funds – a broad SPDR ETF, as well as five iShares corporate bond ETFs focusing on various maturity ranges. They are:
- SPDR Bloomberg Barclays Corporate Bond ETF (CBND (opens in new tab), $31.95)
- iShares Broad USD Investment Grade Corporate Bond ETF (USIG (opens in new tab), $55.11)
- iShares 5-10 Year Investment Grade Corporate Bond ETF (MLQD (opens in new tab), $49.45)
- iShares 10+ Year Investment Grade Corporate Bond ETF (LLQD (opens in new tab), $48.86)
- iShares Intermediate-Term Corporate Bond ETF (IGIB (opens in new tab), $55.09)
- iShares Long-Term Corporate Bond ETF (IGLB (opens in new tab), $60.16)
Learn more about these funds at their respective provider sites: USIG (opens in new tab) | MLQD (opens in new tab) | LLQD (opens in new tab) | IGIB (opens in new tab) | IGLB (opens in new tab) | CBND (opens in new tab)
U.S. High-Yield Bond
- Cheapest fund: Xtrackers USD High Yield Corporate Bond ETF
- Expenses: 0.15%*
The last bond category we’ll cover here is high-yield bonds.
“High-yield bonds,” of course, is language to be used in polite company. But this kind of corporate debt is known by another name: “junk.”
Junk debt will feature a score somewhere below the “investment-grade” line. For Standard & Poor’s, for instance, that starts at BB, then goes down to B, CCC and so forth until D. That’s important to note: Not all junk debt carries the same amount of risk.
DWS makes its lone appearance on this list with the Xtrackers USD High Yield Corporate Bond ETF (HYLB (opens in new tab), $49.96) – a bargain-basement index fund that invests in junk bonds.
The ETF does defray risk somewhat by carrying a deep basket of more than 1,000 securities. There’s also some international exposure; about 15% of the debt is in overseas junk. The top holdings – which include bonds from European telecom Altice’s France and Luxembourg subsidiaries, as well as U.S. telecom Sprint (S (opens in new tab)) – illustrate a little of this diversity.
* Includes 5-basis-point fee waiver through at least March 30, 2020.
Learn more about HYLB at the DWS provider site. (opens in new tab)
U.S. Preferred Stock
- Cheapest fund: Global X U.S. Preferred ETF
- Expenses: 0.23%
Preferred stocks aren’t among the most well-known corners of the market, but they’re well-trafficked by income hunters.
Preferred stocks are often referred to as stock-bond “hybrids” because they feature characteristics of both common shares and corporate debt. For instance, they trade on an exchange like a stock, but they pay out a fixed dividend similar to a bond coupon. They also tend to trade around a “par value” like a bond. Because of the lack of price potential, as well as the fact that they typically don’t come with voting rights, companies must offer large yields on preferreds, often between 5% and 7%.
The Global X U.S. Preferred ETF (PFFD (opens in new tab), $24.20) was launched in September 2017 as the cheapest preferred-stock ETF at the time, and so far, it has maintained that distinction. This fund holds more than 220 preferred stocks from companies such as mega-bank Wells Fargo (WFC (opens in new tab)), med-tech company Becton Dickinson (BDX (opens in new tab)) and communications infrastructure REIT Crown Castle (CCI (opens in new tab)).
And like many preferred-stock index funds, PFFD delivers a generous yield. Presently, its SEC yield is 5.7%.
Learn more about PFFD at the Global X provider site. (opens in new tab)
Commodities - Precious Metals
- Cheapest fund: Aberdeen Standard Physical Swiss Gold Shares ETF
- Expenses: 0.17%
Traditional gold ETFs technically aren’t index funds because they don’t track an index. However, they're still “passive” investments (like index funds) that are designed to simply reflect price changes in gold.
While ETF providers have been undercutting each other for many years now, gold ETFs have been mostly immune until relatively recently. However, in 2017, Will Rhind’s GraniteShares disrupted the industry with a low-cost gold ETF, the GraniteShares Gold Trust (BAR (opens in new tab)).
BAR’s low fees appeared to force the hands of several other fund companies. For instance, SPDR, provider of the ubiquitous SPDR Gold Shares (GLD (opens in new tab)), eventually responded with a low-cost product called the SPDR Gold MiniShares (GLDM (opens in new tab)).
The GraniteShares Gold Trust lowered its fees yet again, to 0.1749%, in October 2018. However, the Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL (opens in new tab), $124.48), which has been around since 2009, dropped its expenses to 0.17% in December 2018 to claim the title of lowest-fee gold ETF.
Aberdeen’s fund is like many other physical gold ETFs in that it aims to track the price of gold bullion. SGOL holds its physical metal in a secured vault in Zurich, Switzerland – hence the name.
Learn more about SGOL at the Aberdeen Standard provider site. (opens in new tab)
Kyle is senior investing editor for Kiplinger.com. As a writer and columnist, he also specializes in exchange-traded funds. He joined Kiplinger in September 2017 after spending six years at InvestorPlace.com, where he managed the editorial staff. His work has appeared in several outlets, including U.S. News & World Report and MSN Money, he has appeared as a guest on Fox Business Network and Money Radio, and he has been quoted in MarketWatch, Vice and Univision, among other outlets. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.
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