When it comes to investing in ETFs, various investors are acclimated to using different metrics, fundamental or technical, when it comes down to screening for those with the best returns.
One aspect that may be overlooked is the cost of the returns generated, which can be simplified into one key metric: the expense ratio.
ETF investors are aware that compared to a mutual fund, their investment of choice offers lower expense ratios. A quick trip to Investopedia reveals the definition of an expense ratio as “an annual calculation, where a fund’s operating expenses are divided by the average dollar value of its assets under management (AUM).” As such, an ETF that is generating remarkable returns may have a high expense ratio attached to it.
Related: 5 Key Things to Know About Fixed Income ETFs
In the fixed income ETF space, low expense ratios compared to return offer an insight into efficiency. Here are four ETFs that dismiss the adage of “you get what you pay for” with their low expense ratios.
- Schwab US Aggregate Bond ETF (NSYEArca: SCHZ) – 0.04% Expense Ratio: SCHZ consists of a variety of fixed rate, non-convertible and U.S. dollar denominated bonds. In addition, SCHZ is one of the few ETFs that track the broad and well-known Bloomberg Barclays US Aggregate Index. Bonds the ETF incorporates includes U.S. Treasurys, government-related and corporate bonds and mortgage pass-through securities.
Three-year return: 1.21% - SPDR Portfolio Aggregate Bond ETF (NSYEArca: SPAB) – 0.04% Expense Ratio: SPAB tracks the Bloomberg Barclays US Aggregate Bond Index and offers market-like exposure to the broad US investment grade space.
Three-year return: 1.32% - Vanguard Total Bond Market ETF (NSYEArca: BND) – 0.05% Expense Ratio: BND tracks a broad, market-value-weighted index of US dollar-denominated, investment-grade, taxable, fixed-income securities with maturities with at least one year.
Three-year return: 1.34% - iShares Core US Aggregate Bond ETF (NSYEArca: AGG) – 0.05% Expense Ratio: AGG tracks an index of US investment-grade bonds and also the market-weighted index, including Treasuries, agencies, CMBS, ABS and investment-grade corporates.
Three-year return: 1.29%
For more fixed income investment solutions, visit the Fixed Income Channel.