Proponents of exchange traded funds (ETFs) frequently cite their rock-bottom fees. According to a Kiplinger article , various studies substantiate this claim. “Numerous studies show that over the long term, managed mutual funds cannot beat an index fund, such as an ETF,” the article noted. “For example, according to the SPIVA scorecard , 75% of large cap funds ‘underperformed’ the S&P 500 over five years through Dec. 31, 2020.
Almost 70% underperformed over three years, and 60% over one year. And this is just the tip of the iceberg, with most other managed mutual funds — both domestic and international — underperforming their applicable index.”
“This is partly explained by the higher fees of managed mutual funds, which cut into the investor’s return,” the article added. “According to Morningstar, the average expense ratio for a managed mutual fund in 2019 was 0.66%. Compare this to a well-diversified portfolio of ETFs, which can be put together with an average blended fee of 0.09%, according to ETF.com. Try getting a fee that low with mutual funds.”
Some Low-Cost Value Options
ETF investors looking to take advantage of the recent interest in value-tilted funds can check out the following assets:
- Vanguard Value ETF (VTV): VTV exhibits the typical characteristics of a value-based fund that primarily houses large cap stocks. When markets are pushing higher, it can capture upside while muting the effects of volatility whenever there’s downward selling pressure.
- Schwab U.S. Large-Cap Value ETF (SCHV): Seeks to track the total return of the Dow Jones U.S. Large-Cap Value Total Stock Market Index. To pursue its goal, the fund generally invests in stocks that are included in the Dow Jones U.S. Large-Cap Value Total Stock Market Index. The index includes the large-cap value portion of the Dow Jones U.S. Total Stock Market Index actually available to investors in the marketplace. The Dow Jones U.S. Large-Cap Value Total Stock Market Index includes the components ranked 1-750 by full market capitalization and that are classified as “value” based on a number of factors.
- iShares Core S&P U.S. Value ETF (IUSV): Seeks to track the investment results of the S&P 900 Value Index, which measures the performance of the large- and mid-capitalization value sector of the U.S. equity market. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index, but which the advisor believes will help the fund track the underlying index.
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