If Expense Ratio Really Mattered, Most of These ETFs Would Dominate

Year after year, investors say that expense ratio matters most when choosing an ETF. While I’ve long advocated for investors to dive deeper to understand what’s inside the funds they own or are considering, what has become clear is that awareness is key to an ETF being selected.

Last month when Brown Brothers Harriman published its 10th annual global ETF survey, it asked about the most important factor when selecting an ETF. Expense ratio swapped places with ETF issuer and was the number one selection, followed by tax efficiency, index methodology, and historical performance. Trading volume dropped from third place to seventh place this year. 

There are three ETFs tracking the S&P 500 Index available for what seems like a bargain basement fee of just three basis points (0.03%), and they manage a combined $620 billion in assets. However, there are funds that are available for less but are below investors’ radar. 

The BNY Mellon US Large Cap ETF (BKLC) has no expense ratio because the fee is 0.00%. Despite this, the large-cap ETF has just $1.8 billion in assets. While trading volume matters less to investors than it did in the past, the fund also trades more than 360,000 shares per day. While not as high as S&P 500 Index-based funds, this is sufficiently liquid for advisors and end clients, even before we discuss the liquidity of its holdings Apple, Microsoft, and Amazon. BNY Mellon manages just under $4 billion in assets, including $450 million in the BNY Mellon International Equity ETF (BKIE), which provides developed markets exposure for a miniscule 0.04% fee. 

The JPMorgan BetaBuilders US Equity ETF (BBUS) charges a 0.02% expense ratio and has $1.5 billion in assets. The ETF trades over 100,000 shares per day, and it too holds Apple, Microsoft, and Amazon. While JPMorgan’s largest ETFs are actively managed, they have used their scale as an advantage in the broad market space.  

Meanwhile, the SoFi Select 500 ETF (SFY) matches BKLC with an expense ratio of zero, and yet it has $455 million in assets. Like BBUS, it trades just over 100,000 shares. Looking inside SFY, investors will find hefty stakes in Apple, Microsoft, and Amazon as well. 

These three low- or no-cost U.S. core equity ETFs have meaningful histories to compare with one another — and the more well-known S&P 500 Index-based products — since BBUS and SFY launched in 2019 and BKLC launched in 2020. Yet, we think many advisors are not aware that these products exist and can be considered when building asset allocation strategies for new and existing clients.  

If expense ratio matters as much as people claim, then they really should do the homework to understand the cheapest funds available. 

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