Competition in the exchange traded fund (ETF) arena is gathering steam and you know what that means: expense ratios are shrinking further. Don Dion for Seeking Alpha writes about the impact a low expense ratio can have on a fund over the long-term. However, is it the only thing you should consider?
When you purchase a car, do you only look at one thing? We sure hope not! Along with the mileage a vehicle gets, you probably also consider things such as reliability, safety and how well it suits your overall lifestyle and needs, right? The same holds true for ETFs — taking a big-picture view of things will serve an investor well over time.
One area where the expense ratio race is heating up is the emerging markets sector, which, like other targeted sectors, has generally been on the pricey side. Vanguard has entered the ETF race relatively late and are now playing a game of catch-up with low prices. Their Emerging Markets Stock ETF (VWO), their costliest international ETF, costs 30 basis points.
Barclay’s iShares has responded to the pressure by lowering the annual fees on most of their international ETFs by four or five basis points. The only untouched ETF was their MSCI Emerging Markets Index (EEM). Their reasoning? The expense ratio is important, yes, but it isn’t the end-all, be-all. Other things to consider, according to iShares, are tracking errors, implicit costs, and liquidity.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.