Market Overview

10 ETFs That Should Lower Their Expense Ratios


One of the primary reasons why ETFs have become so popular and why they're more than just a pesky younger sibling to mutual funds is costs. As in ETFs a vast majority of the time are far cheaper than mutual funds. Even if we're gracious enough to say the cost of an "average" mutual fund is "just" 1%, there's an excellent chance there is a cheaper, comparable ETF on the market.

Cost is a reason that ETF issuers such as State Street's (NYSE: STT) State Street Global Advisors and Vanguard, among others, have able to establish dominant positions in the ETF market.

Yes, there are plenty of ETFs trading today that we like that have expense ratios that are already at bare bones levels. However, in a universe that is populated by almost 1,500 ETFs and ETNs, there are plenty of should lower their expense ratios and do so sooner than later. Here are 10 we've nominated for the fee chopping block.

iShares High Dividend Equity Fund (NYSE: HDV) The fact that HDV has over $1.2 billion in AUM and isn't even a year old yet is impressive and there is good reason to to like this fund. There's also good reasons for iShares to consider paring HDV's 0.4% expense ratio.

Two of HDV's most obvious competitors, the Vanguard Dividend Appreciation ETF (NYSE: VIG) and the SPDR S&P Dividend ETF (NYSE: SDY) feature lower fees. In fact, VIG charges 0.18% and this is important for long-term investors, which we assume dividend ETFs are attracting.

Vanguard Financials ETF (NYSE: VFH) It's odd that any Vanguard fund would make this list because it has been a low-cost strategy that has enabled the firm to become the third-largest U.S. ETF sponsor. However, VFH features an expense ratio of 0.23%. Not bad, but it's well above the 0.18% charged by the Financial Select Sector SPDR (NYSE: XLF).

SPDR S&P Russia ETF (NYSE: RBL) The SPDR S&P Russia ETF is actually cheaper than the Market Vectors Russia ETF (NYSE: RSX) and not that much more expensive than the iShares MSCI Russia Capped Index Fund (NYSE: ERUS), but the SPDR offering is well behind both its rivals in terms of AUM. A fine way to fix that situation would be to go to an expense ratio below 0.5%.

Market Vectors Pharmaceuticals ETF (NYSE: PPH) We're willing to extend the Market Vectors Pharmaceuticals ETF the courtesy of some time because it has only been a couple of months since Van Eck rolled this old HOLDRs fund into the Market Vectors mix. PPH's 0.35% expense ratio isn't high per se, it's just high compared to the Health Care Select Sector SPDR (NYSE: XLV).

First Trust NYSE Arca Biotech Index Fund (NYSE: FBT) FBT has had moments in the sun this year and some glum days as well. Overall though, this has been solid biotech performer this year. But FBT charges 0.60% and that's far higher than the SPDR S&P Biotech ETF (NYSE: XBI) and the iShares Nasdaq Biotechnology ETF (Nasdaq: IBB).

Global X Silver Miners ETF (NYSE: SIL) Including SIL on this list isn't a criticism of the fund or its 0.65% expense. Consider it more along the lines of friendly advice. As we have previously noted SIL faces new competition in the form of a cheaper iShares offering. SIL's first-to-market advantage will come in handy to be sure, but sometimes it's better to be safe than sorry when it comes to ETF expense ratios, especially when there's new competition from iShares.

EGShares India Small Cap ETF (NYSE: SCIN) It's no secret that we really like this ETF and the rival Market Vectors India Small-Cap ETF (NYSE: SCIF). The drawback to both is that they charge 0.85% and that's punitive to long-term investors. As is the case with SIL, some new competition from iShares could do the trick and prompt EGShares and Van Eck to cut the costs on their India small-cap funds.

iShares Dow Jones US Oil Equipment Index Fund (NYSE: IEZ) We're only speculating here, but maybe a conversation has taken place around the iShares offices that IEZ having almost $535 million in AUM with an expense ratio of 0.47% is a good thing. That's a fine AUM haul for any ETF, but maybe a lower expense ratio would boost the AUM number. The Market Vectors Oil Services ETF (NYSE: OIH) has fees of 0.35% and that difference in expenses has helped OIH amass more than double the AUM total of its iShares rival.

First Trust Brazil AlphaDEX Fund (NYSE: FBZ) Quiet as it has been kept, the First Trust Brazil AlphaDEX Fund has actually outperformed the iShares MSCI Brazil Index Fund (NYSE: EWZ) this year. The issue is that the margin of outperformance isn't wide enough for long-term investors paying 0.8% for FBZ compared to 0.59% for EWZ. Translation: If FBZ cuts its fees and folks start really paying attention to the ETF, EWZ could eventually have a legitimate rival on its hands.

iShares Dow Jones US Consumer Goods ETF (NYSE: IYK) The fact that the iShares Dow Jones US Consumer Goods ETF has over $384 million in AUM is proof positive of two things: Brand recognition is import in the world of ETFs and someone isn't doing their homework. We say that because IYK charges 0.47%. The comparable SPDR and Vanguard staples ETFs charge 0.18% and 0.19%, respectively. Again, staples stocks and ETFs are usually held for extended time frames, so the fees really matter.

Posted-In: Long Ideas News Sector ETFs Broad U.S. Equity ETFs Short Ideas Dividends Dividends Specialty ETFs Best of Benzinga


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