Broad market U.S. equity exchange traded funds have been fertile ground in the ETF fee wars. While annual fees are a fact of life in the fund universe, some ETFs charge barely noticeable expense ratios and data confirm investors love these low-cost products.
Just look at the iShares S&P 1500 Index Fund (ETF) ITOT. With an annual fee of just 0.03 percent, or $3 on a $10,000 investment, ITOT competes with ETFs such as the Schwab U S Large Cap ETF SCHX and the Schwab U.S. Broad Market SCHB for honors among the least expensive US-listed ETFs.
ITOT competes with those Schwab funds “as the lowest cost ETPs available in the U.S. listed ETP spectrum. This fact is surely helping asset raising assets in this fund (over $2.7 billion in inflows thus far in 2017),” said Street One Financial Vice President Paul Weisbruch in a recent note.
Somewhat Different
Total market ETFs, such as ITOT, offer some differences when measured against the S&P 500, but there are similarities as well. ITOT follows the S&P Total Market Index, which is a vastly different benchmark than the S&P 500. The big difference is in the number of holdings. While the S&P 500 holds just over 500 stocks, ITOT's roster is just over 3,600 stocks.
None of ITOT's holdings command 3 percent of the ETF's weight. Top 10 holdings in the ETF include fare typical of cap-weighted, broad market funds, such as Apple Inc. AAPL, Microsoft Corporation MSFT and Exxon Mobil Corporation XOM.
Even with the differences between itself and the S&P 500, ITOT's three-year returns and annualized volatility over that span only show negligible differences relative to the benchmark U.S. equity index.
Cheap Is Popular
As is often said, fees make a difference for long-term investors, which likely explains why so many of this year's top asset-gathering ETFs can be deemed “low-cost” products.
“The fact that expense ratios are extremely low in these ETFs when compared to other ETPs across the U.S. listed landscape show that both retail and institutional portfolio managers continue to exhibit a very healthy appetite for 'cheap, passive beta' exposure to markets in spite of the presence of more expensive alternatives (Active, Smart Beta) that have in many cases raised assets in their own rights,” said Weisbruch.
ITOT now has $9.7 billion in assets under management, $2.8 billion of which has flowed into the fund this year.
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