Investing in ASX ETFs gives investors a great opportunity for diversification in a single trade.
Of course, knowing what you are investing in is vital when making your decision.
However an often overlooked aspect of ASX ETF investing is the cost of management fees.
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What are ASX ETF management fees?
ASX ETF management fees are the ongoing costs charged by the fund provider to operate and manage the exchange-traded fund.
These fees help cover expenses like portfolio management, administration, index licensing, custody, and regulatory compliance.
Management fees are usually expressed as a percentage per annum (% p.a.) of the total value of your investment.
Rather than being charged directly to investors, the fee is automatically deducted from the ETF's assets on an ongoing basis, meaning it is reflected in the ETF's unit price and overall returns over time.
It is also important to recognise that different funds have different fees based on how complex the fund is to run.
Actively managed and specialised funds tend to be more expensive due to research, trading, and management costs, while passive index funds are usually cheaper.
Fees can also be higher for funds with international exposure, currency hedging, or less liquid assets. In contrast, large, broad-market funds often have lower fees because their costs are spread across more investors.
Does the management fee really matter?
When you compare funds, you might see management costs ranging from 0.05% p.a. to even 1% p.a.
While 1% might not sound like a lot, even a tiny difference in management fees can add up over the long-term, especially with large investments.
The Motley Fool's Sebastian Bowen covered this in great detail last year.
His research shows an ASX ETF that is 0.05% cheaper can save you almost $6,000 over a 20-year period.
With that in mind, here are some options for investors seeking low-fee ASX ETFs that have also brought strong returns.
Vanguard Us Total Market Shares Index ETF (ASX: VTS)
This fund is the cheapest fund I could find in terms of management fees p.a.
Its management fee sits at just 0.03% p.a.
The fund provides exposure to some of the world's largest companies listed in the United States.
Alongside this low ongoing cost, it has risen by 93.89% in the last 5 years.
iShares S&P 500 ETF (ASX: IVV)
Put simply, this fund aims to provide investors with the performance of the S&P 500 Index.
The fund has risen by 104.83% in the last 5 years.
Alongside this growth, it has a very low cost fee of 0.04% p.a.
Vanguard FTSE All-World ex-US ETF (ASX: VEU)
This ETF provides exposure to many of the world's largest companies listed in major developed and emerging countries outside the US.
It has a management fee of 0.04% p.a and has risen by 43% in the last 5 years.
Vanguard MSCI Index International Shares ETF (ASX: VGS)
This is Australia's second largest ETF by market capitalisation.
It has a management fee of 0.18% p.a.
The fund includes around 1,300 companies from developed countries, excluding Australia.
It has risen by almost 80% in the last 5 years.
