The Lowest Fee Bond ETFs
Why invest in the lowest fee bond ETFs? Very simply, investors can afford to be picky these days now that there are over 250 exchange-traded funds from which to choose. And one of the best ways to make the most from your money over the long term is to invest in funds with the lowest fees. Every fund company charges annual fees that they take out of the pool of assets invested in their funds, which they use to pay for operations and make a profit from their business.
For instance, if a fund with an expense ratio of 0.50% owns securities that produce a total return of 6% in a calendar year, investors earn a return of 5.5%.
Over time, funds with the lowest fees tend to outperform since that extra bit of cash investors get to keep compounds along with the rest of their principal. This is particularly important with bond funds, since long-term total returns tend to come in around the mid-single digits over time, meaning that fees (which typically run from 0.1% to 1.2% for bond funds) can have a substantial impact.
Learn more about this topic in my article, Why Invest in Funds with the Lowest Fees?
Bond ETF fees have been gradually coming down over time as fund providers battle for new assets, which has helped investors by bringing no fewer than 32 funds – many of which are offered by Vanguard – to 0.12% or less, well below the category average of 0.43%. Note that the majority of these funds are index funds and/or those that focus on U.S. Treasuries, areas that typically don’t incur much in the way of expenses.
On the other end of the spectrum, the most expensive ETFs tend to be those that are actively managed or that invest in a market segments where expenses tend to run high for the fund companies, such as emerging market bonds. As a result, it’s important to remember that there’s more to building a complete bond portfolio than simply picking funds with the lowest expenses.
With this in mind, here are the lowest fee bond ETFs as of June, 2014.
For instance, if a fund with an expense ratio of 0.50% owns securities that produce a total return of 6% in a calendar year, investors earn a return of 5.5%.
Over time, funds with the lowest fees tend to outperform since that extra bit of cash investors get to keep compounds along with the rest of their principal. This is particularly important with bond funds, since long-term total returns tend to come in around the mid-single digits over time, meaning that fees (which typically run from 0.1% to 1.2% for bond funds) can have a substantial impact.
Learn more about this topic in my article, Why Invest in Funds with the Lowest Fees?
Bond ETF fees have been gradually coming down over time as fund providers battle for new assets, which has helped investors by bringing no fewer than 32 funds – many of which are offered by Vanguard – to 0.12% or less, well below the category average of 0.43%. Note that the majority of these funds are index funds and/or those that focus on U.S. Treasuries, areas that typically don’t incur much in the way of expenses.
On the other end of the spectrum, the most expensive ETFs tend to be those that are actively managed or that invest in a market segments where expenses tend to run high for the fund companies, such as emerging market bonds. As a result, it’s important to remember that there’s more to building a complete bond portfolio than simply picking funds with the lowest expenses.
With this in mind, here are the lowest fee bond ETFs as of June, 2014.
- iShares Treasury Floating Rate (TFLO), 0.00%
- WisdomTree Bloomberg Floating Rate Treasury Fund (USFR), 0.00%
- Schwab U.S. Aggregate Bond ETF (SCHZ), 0.05%
- Schwab U.S. TIPS ETF, (SCHP), 0.07%
- Schwab Short-Term U.S. Treasury ETF (SCHO), 0.08%
- iShares Core Total U.S. Bond Market ETF (AGG), 0.08%
- PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ), 0.09%
- Vanguard Short-Term Inflation-Protected Securities ETF (VTIP), 0.10%
- Schwab Intermediate-Term U.S. Treasury ETF (SCHR), 0.10%
- Vanguard Total Bond Market ETF (BND), 0.10%
- Vanguard Short-Term Bond ETF (BSV), 0.10%
- Vanguard Intermediate-Term Bond ETF (BIV), 0.10%
- Vanguard Long-Term Bond ETF (BLV), 0.10%
- Vanguard Intermediate-Term Bond ETF (BIV), 0.10%
- iSharesBond 2016 Corporate Term ETF (IBDA), 0.10%
- iSharesBond 2018 Corporate Term ETF (IBDB), 0.10%
- iSharesBond 2020 Corporate Term ETF (IBDC), 0.10%
- iSharesBond 2023 Corporate Term ETF (IBDB), 0.10%
- iSharesBond 2016 Corporate ex-Financials Term ETF (IBCB), 0.10%
- iSharesBond 2018 Corporate ex-Financials Term ETF (IBCC), 0.10%
- iSharesBond 2020 Corporate ex-Financials Term ETF (IBCD), 0.10%
- iSharesBond 2023 Corporate ex-Financials Term ETF (IBCE), 0.10%
- iSharesBond Dec 2016 Corporate Term ETF (IBDF)
- iSharesBond Dec 2018 Corporate Term ETF (IBDH)
- Vanguard Mortgage-Backed Securities ETF (VMBS), 0.12%
- Vanguard Short-Term Government Bond ETF (VGSH), 0.12%
- Vanguard Long-Term Government Bond ETF (VGLT), 0.12%
- Vanguard Intermediate-Term Government Bond ETF (VGIT), 0.12%
- Vanguard Short-Term Corporate Bond ETF (VCSH), 0.12%
- Vanguard Long-Term Corporate Bond ETF (VCLT), 0.12%
- Vanguard Intermediate-Term Corporate Bond ETF (VCIT), 0.12%
- SPDR Barclays Capital Short Term Treasury ETF (SST), 0.12%
- SPDR Barclays Capital Short Term Corporate Bond ETF (SCPB), 0.12%
- iShares Core Short-Term U.S. Bond ETF, (ISTB) 0.12%
- iShares Core Long-Term U.S. Bond ETF (ILTB), 0.12%
- Vanguard Extended Duration Treasury ETF (EDV), 0.12%
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