Important clarification: For the purposes of this article,
"cheaper" does not refer to valuation, but rather to ETF expense
ratios and cost of ownership. Other cost of ownership factors
include an ETF's bid/ask spread and trading commissions.
expanding lineup of commission-free ETF
at various brokerage firms, investors can eliminate the cost of
trading. However, acknowledging that trading for free is a good
thing, it must also be acknowledged that there are more than
1,400 exchange-traded products trading in the U.S. and most of
those cannot be traded commission-free.
With those factors in mind, we screened for the
with the lowest expense ratios across several sub-segments of the
equity-based fund universe to see if the cheapest ETFs can lead
investors to the highest returns. The following funds include
broader market ETFs, dividend plays and a well-known rivalry
between sector funds.
Schwab U.S. Large-Cap Value ETF (NYSE:
) The Schwab U.S. Large-Cap Value ETF competes directly with the
Vanguard Value ETF (NYSE:
says as much on his web site
. In this comparison, commissions are somewhat of a moot point
because Schwab clients can trade SCHV commission-free while
Vanguard clients get the same deal on VTV.
Regarding expense ratio, SCHV charges a scant 0.07 percent per
year, although it should be said that VTV is by no means pricey
at 0.1 percent. VTV is the larger of the two funds and not just
by assets. The Vanguard offering is home to 416 stocks compared
to 352 for SCHV. The two also track different indexes. VTV tracks
the MSCI US Prime Market Value Index while the Dow Jones U.S.
Large Cap Total Stock Market Index is the underlying index for
Getting down to the heart of the matter, SCHV has surged
almost 40 percent since its December 2009 debut. VTV is up just
over 36 over the same time. In this case, cheaper has been better
in terms of the total returns offered by SCHV.
Vanguard Consumer Staples ETF (NYSE:
) Late last year, Vanguard
lowered fees on its popular sector fees
making almost all of them less expensive than the comparable
Select Sector SPDRs offered by rival State Street Global
Advisors. In the case of the Vanguard Consumer Staples ETF and
the Consumer Staples Select Sector SPDR (NYSE:
), VDC is less expensive by four basis points at 0.14 percent per
Additionally, Vanguard clients can trade VDC commission-free.
Although State Street has hooked with Schwab to offer some SSgA
XLP is not among them
This comparison is somewhat tricky because VDC has only been
operating for three months with lower fees than XLP. On a
year-to-date basis, VDC is slightly ahead of its SPDR rival.
Interestingly, VDC has outpaced XLP by about 400 basis points
over the past five years and a fair amount of that time saw XLP
as the lower-fee option of the pair.
SPDR S&P Dividend ETF (NYSE:
) In terms of fees, the SPDR S&P Dividend ETF is fair with an
annual expense ratio of 0.35 percent. SDY, the second-largest
U.S. dividend ETF by assets under management, competes with a
growing number of funds, but one of its prime competitors is the
WisdomTree LargeCap Dividend Fund (NYSE:
DLN, which is nearly seven years old, charges a yearly expense
ratio of 0.28 percent and can be traded commission-free by
E-Trade clients. Those factors are good news for investors
considering DLN, but they do not highlight the most important
difference between these two ETFs.
SDY uses a familiar weighting methodology among dividend ETFs,
that being a focus on length of dividend increase
. Conversely, the WisdomTree LargeCap Dividend Index (WTLDI),
DLN's underlying index, is "dividend weighted annually to reflect
the proportionate share of the aggregate cash dividends each
component company is projected to pay in the coming year,"
according to WisdomTree.
Over the past two years as U.S. dividend stocks have undergone
a post-financial crisis resurgence, DLN is up nearly 24 percent
compared to a gain of 22 percent for SDY.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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