Must-know: Why you should compare expense ratios across ETFs


Mar. 21 2014, Published 5:00 p.m. ET

Comparing expense ratios across ETFs

Within the universe of ETFs too, we can observe certain differences in expense ratios. ETFs that invest in small or international companies tend to have higher expense ratios on account of the additional research and personnel costs involved. As you can see from the chart below, commodity ETFs tend to have higher expense ratios. Among the highest expense ratios, the Sugar Fund ETF (CANE) has an expense ratio of 2.32%.

Small- versus large-company ETFs

ETFs with small-cap company exposures tend to have higher expense ratios. The iShares Russell 2000 ETF (IWM) and the Core S&P Small-Cap ETF (IJR) both belong to the small-cap-blend equities ETF category. They have an expense ratio of 0.28% and 0.16%, respectively.

On the other hand, large-cap-blend equity ETFs like the popular SPDR S&P 500 (SPY) and the Core S&P 500 ETF (IVV) have expense ratios of 0.09% and 0.07%, respectively.

U.S. versus international ETFs

The expense ratios for U.S. Treasury ETFs range from 0.00% to 0.30%, while for international government bonds ETFs, the expense ratio generally falls in the range of 0.35% to 0.50%.

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Similarly, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), which holds the bonds of highly liquid investment-grade U.S. corporations like Apple Inc. (AAPL) and Verizon Communications Inc. (VZ), has an expense ratio of 0.15%. On the other hand, the expense ratio for the SPDR Barclays Capital International Corporate Bond ETF (IBND)—which invests in global investment-grade, fixed-rate, fixed-income corporate markets outside the U.S.—stands at 0.55%

Treasury versus high-yield bond ETFs

As we’ve seen, the expense ratios for U.S. Treasury ETFs range from 0.00% to 0.30%. High-yield bonds ETFs like the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK) have expense ratios of 0.50% and 0.40%, respectively. The category average for high-yield bonds ETFs falls in the range of 0.30% to 1.45%.

To learn more about investing in fixed income securities, see the Market Realist series Do mortgage rates follow movements in Treasury yields?


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