One of the easiest risks to minimize in investing is excessive fund fees. That’s why, when looking for ETFs, you should always try to minimize the expense ratio.
The expense ratio is the annual cost of owning an ETF, expressed as a percentage of your investment. Just like dividends compound positively over time, fees compound negatively, eating away at your returns year after year.
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Fidelity Mutul Funds
For mutual funds, expense ratios have already hit 0% thanks to Fidelity’s ZERO lineup, which uses proprietary indices to keep licensing costs minimal and offsets expenses by lending out securities.
For ETFs, only two funds currently meet the 0% expense ratio mark, and both come from BNY Mellon. Here’s a closer look at these truly free-to-own ETFs.
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BNY Mellon US Large Cap Core Equity ETF (BKLC)
Consider the BNY Mellon US Large Cap Core Equity ETF (BKLC) as a 0% expense ratio alternative to traditional S&P 500 index ETFs, which—despite being cheap—aren’t free because it costs money to license the index.
Instead of tracking the S&P 500, BKLC follows the Solactive GBS United States 500 Index TR. This is actually a more passive approach than the S&P 500, since there’s no selection committee and no earnings screen—it just holds the 500 largest U.S. companies based purely on market cap.
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What Does that Mean?
That means you’re still getting roughly the same basket of 500 U.S. large caps, diversified across all 11 sectors, with a market cap-weighted structure that makes it very liquid and gives it similar historical exposure.
In fact, over the past four years, it has an annualized return of 12.56%, slightly outperforming the index (11.97%) due to a rare case of positive tracking error.
BKLC falls squarely into the large blend style category and is well-capitalized, with just over $1 billion in AUM, meaning it’s not at risk of shutting down anytime soon.
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BNY Mellon Core Bond ETF (BKAG)
A very popular broad bond market benchmark for investors is the Bloomberg U.S. Aggregate Bond Index, or simply “the Agg.”
This index covers a diverse mix of U.S. Treasuries, mortgage-backed securities (MBS), and investment-grade corporate bonds across various maturities, making it a widely used measure of the total U.S. bond market.
ETFs tracking the Agg have historically been very cheap, with some as low as 0.03% in fees. But now, thanks to BNY Mellon Core Bond ETF (BKAG), that cost has officially hit 0%.
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More About BKAG
There’s nothing particularly notable or unique about BKAG, aside from the lack of fees. It’s a plain vanilla Agg-tracking ETF, offering broad fixed-income exposure with a 4.88% weighted average yield to maturity and a 5.89-year duration.
With $1.98 billion in AUM, it’s not at risk of closure, though it’s not the most tax-efficient choice due to its corporate bond holdings.
As far as dirt-cheap broad bond market exposure goes, BKAG pairs well with BKLC, making for a completely free, well-diversified stock-and-bond portfolio.
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Disclaimer
The information provided by ETF Portfolio Blueprint is for general informational purposes only. All information on the site is provided in good faith, however, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information on the site. Past performance is not indicative of future results. ETF Portfolio Blueprint does not offer investment advice, and readers are encouraged to do their own research (DYOR) before making any investment decisions.
This article originally appeared on ETFPortfolioBlueprint.com and was syndicated by MediaFeed.org.
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