One of the biggest appeals of an exchange-traded fund (ETF) investment vehicle is the extremely low fees that many ETFs charge. It’s not uncommon to see a traditionally-managed fund charge a management fee of 1.5%, 2% or even 3%. But ETFs can offer a fraction of these costs. Unless a managed fund can massively outperform every year (which is uncommon), the average investor will often be better with a low-cost ETF.
So with this in mind, I’ve scoured the ASX for the cheapest ETFs out there. Here are 3 that I’ve found:
These 2 ETFs cover US shares
The US market is one of the cheapest markets for investors to gain exposure to, even cheaper than our own ASX.
If you’re after exposure to the S&P 500 (the most popular index in the US), then the cheapest option is the iShares S&P 500 ETF (ASX: IVV). This ETF by iShares charges a management fee of just 0.04% per annum. That’s $4 a year for every $10,000 invested.
If you would like broader exposure to the US markets than the S&P 500, you can look to the Vanguard US Total Markets Shares Index ETF (ASX: VTS). This ETF is even cheaper than iShares with a management fee of just 0.03% per annum. Rather than holding 500 companies like iShares, this Vanguard ETF invests in almost 3,500 individual companies across the US markets.
Regardless of which of these funds you go with, you are still getting heavy exposure to top-weighted American companies like Apple Inc. (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) and Amazon.com, Inc. (NASDAQ: AMZN) with both ETFs.
The cheapest ASX ETF
If you consider yourself a patriot and want to just stick with Australian shares, then I’ve got some bad news. Despite being ‘our local’, ASX-based ETFs are more costly than those covering US shares.
If you want exposure to the largest ASX companies like CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS), then the Betashares Australia 200 ETF (ASX: A200) is your cheapest option. The Betahsares ETF comes with a 0.07% per annum management fee and covers the S&P/ASX 200 Index (INDEXASX: XJO), which includes the largest 200 companies on the ASX.
For broader exposure to Aussie companies, there’s the Vanguard Australian Shares Index ETF (ASX: VAS). This ETF covers the top 300 shares instead of the ASX 200. But this ETF is a little pricier and will set you back 0.1% per annum.
An all-world fund
For true diversification, you could consider Vanguard All-World ex-US Shares Index ETF (ASX: VEU). This fund holds over 3,400 companies from multiple countries (excluding the United States). Japan, China, the United Kingdom, Switzerland and France are the largest contributors, but 39 other countries are also represented here. For all this diversification, VEU only charges a management fee of 0.08% per annum. Not bad if you’re after exotic companies like Alibaba, Nestle, Tencent, Toyota and Samsung.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares) and Telstra Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Alphabet (A shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.