The Appeal of ETFs: Diversification and Professional Management
The appeal of exchange-traded funds (ETFs) is crystal clear: increase the diversification of your portfolio by targeting a large basket of equities with a single ticker to trade, and leave oversight of that basket to professional fund managers. It’s no wonder that ETFs have exploded in popularity, now comprising more than 10,000 funds managing over $11 trillion in assets.
Understanding Expense Ratios: The Key to Maximizing Returns
When it comes to investing in ETFs, one crucial factor to consider is the expense ratio. This ratio represents the fee that fund managers charge to oversee and administer these products. While an expense ratio may seem insignificant at first glance, these fees have the potential to add up over time. For example, a ratio of 0.50% means you’ll pay $50 on every $10,000 invested in an ETF each year.
Fortunately for investors, many fund providers are lowering expense ratios to attract potential customers, making their products a more appealing value prospect. By selecting ETFs with low expense ratios, investors can minimize costs and retain a larger share of returns.
Three ETFs with Low Expense Ratios and Strong Performance
SPMO: Momentum Factor Investing at a Low Cost
The Invesco S&P 500 Momentum ETF (NYSE:) focuses on stocks with a recent history of outperformance. By targeting firms with a strong 1-year growth history, SPMO aims to capitalize on continued momentum in fast-growing stocks while mitigating risk through a portfolio of 100 different names. With an expense ratio of just 0.13% and a 1-year return of nearly 69%, SPMO offers competitive fees and a good value for investors.
FGLD: Access to Responsibly Sourced Gold
The Franklin Responsibly Sourced Gold ETF (NYSE:) provides investors with indirect exposure to gold bullion. With a 1-year return of 40% and an expense ratio of just 0.10%, FGLD stands out as a desirable option for investors looking to benefit from the soaring gold prices. What sets FGLD apart is its focus on holding responsibly sourced gold, ensuring ethical and environmental standards are met.
SEIM: Another Targeted Momentum Play
The SEI Enhanced U.S. Large Cap Momentum Factor ETF (NYSE:) is an actively managed fund that targets large-cap stocks with a history of strong performance. Despite having a narrower list of stocks compared to SPMO, SEIM offers an expense ratio of just 0.15% and a remarkable 1-year performance of nearly 53%, making it an attractive option for investors seeking a low-cost, high-return investment.
Analyzing ETF Considerations for Investors
When evaluating ETFs for investment, it’s essential to consider various factors beyond just the expense ratio. For investors planning to trade ETF holdings more regularly, monitoring liquidity metrics such as trading volume is crucial. Lower liquidity may result in higher trading costs, potentially offsetting the benefits of a low expense ratio. On the other hand, investors employing a buy-and-hold strategy may prioritize factors like portfolio diversification and rebalancing frequency.