One of the ETF industry's most oft-used talking points has been
costs. Specifically, it is frequently cited that expenses and fees
associated with most ETFs are lower than what investors will find
with mutual funds. Comparing the average fees for ETFs and mutual
shows a clear divide in favor of ETFs
In addition, expense ratios on the largest ETFs, as measured by
assets, indicate that plenty of investors enjoy low fees. For
example, SPDR S&P 500 (NYSE:
), the world's largest ETF by assets, has a net expense ratio of
0.0945 percent. The Vanguard Dividend Appreciation ETF (NYSE:
), the largest dividend ETF, charges just 0.13 percent per
These are Rock-bottom numbers to be sure, but
cheaper is not always better with ETFs
. This notion is highlighted in a recent research note published by
S&P Capital IQ.
"Costs alone shouldn't automatically be reason enough to avoid
certain ETFs," said Todd Rosenbluth, an S&P Capital IQ ETF
analyst. Rosenbluth acknowledged that investors are often drawn to
the cheapest funds regardless of quality. He said, rather than
focusing solely on costs, "investors should look inside and see
what these ETFs actually own. While the relative gross expense
ratio is a component of the S&P Capital IQ ETF ranking within
our cost-factors analysis, we think looking under the hood is more
Rosenbluth highlights the First Trust Strategic Value Index Fund
) as a prime example of investors of a pricy ETF that might scare
some investors off. Home to 50 stocks, FDV has a net expense ratio
of 0.65 percent, expensive by the standards of large-cap value
By comparison, the Dow Jones Large Cap ETF (NYSE:
) charges just 0.2 percent. The Vanguard Value Trust (NYSE: )
charges just 0.1 percent. However, FDV has outperformed VTV
year-to-date and easily outperformed both ELR and VTV over the past
FDV's top-10 holdings include Humana (NYSE: ), Dell (NASDAQ: ),
Marathon Oil (NYSE: ) and Freeport-McMoRan (NYSE: ).
Rosenbluth notes FDV's underlying holdings look strong from both
a valuation and a risk perspective, according to S&P Capital
IQ's proprietary model. He also notes the S&P Capital IQ model
sees bullish trends, from a technical perspective, for this
S&P Capital IQ rates FDV Market weight.
For more on ETF fees, click .
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