Best and Worst ETFs (In Terms of Value)

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 |  Includes: AOA, AOK, AOM, AOR, BIV, BLV, BND, BNDS, BSV, MGK, SPY, TUZ, VTI
by: Clemens Kownatzki

The widely held belief that Mutual Funds would provide diversification and a chance to outperform the markets has been a central theme leading to the growth of the Mutual Fund industry in previous decades. Opponents of Mutual Funds including Vanguard founder John Bogle pointed out that in fact the vast majority of mutual fund managers were not outperforming the benchmark index, the S&P 500. That led to the concept of indexing which provided investors with a low-cost alternative to the higher priced Mutual Funds.

The first Exchange Traded Fund, SPY and many of the Vanguard Index funds still hold to the same belief that investors are better off investing in a low cost index fund which should, over time, match general market returns as near as possible. Those traditional index funds still do so at very low costs compared with the typical Mutual Fund charging fees of 1% and above.

With the growth of ETFs in recent years, we have also witnessed a clear trend towards more complex, and sadly also much more expensive ETFs, some of which have been entering the realm of Mutual Funds in terms of fees. Below are two lists showing the least and most expensive ETFs currently available in US markets, based on info from Yahoo! Finance.

ETFs with lowest expense ratio
Benchmark ETF Ticker Net Assets Exp. Ratio
SPDR – S&P 500 SPY 77.8B 0.09%
Fund Name Ticker Net Assets Exp. Ratio
Vanguard Total Stock Market ETF VTI 131.03B 0.07%
PIMCO 1-3 Year US Treasury Index ETF TUZ 90.64M 0.09%
iShares S&P Conservative Allocation AOK 32.01M 0.11%
iShares S&P Moderate Allocation AOM 50.19M 0.11%
iShares S&P Aggressive Allocation AOA 44.00M 0.11%
iShares S&P Growth Allocation AOR 53.46M 0.11%
iShares S&P Target Date Retirement Inc TGR 4.28M 0.11%
iShares S&P Target Date 2010 TZD 4.40M 0.11%
iShares S&P Target Date 2015 TZE 6.03M 0.11%
iShares S&P Target Date 2020 TZG 9.20M 0.11%
iShares S&P Target Date 2025 TZI 7.72M 0.11%
iShares S&P Target Date 2030 TZL 7.78M 0.11%
iShares S&P Target Date 2035 TZO 4.67M 0.11%
iShares S&P Target Date 2040 TZV 7.84M 0.11%
Vanguard Short-Term Bond ETF BSV 17.90B 0.12%
Vanguard Intermediate-Term Bond ETF BIV 10.30B 0.12%
Vanguard Long-Term Bond ETF BLV 3.02B 0.12%
Vanguard Total Bond Market ETF BND 76.68B 0.12%
SPDR Barclays Capital Aggregate Bond LAG 215.38M 0.13%
Vanguard Mega Cap 300 Gr Index ETF MGK 395.08M 0.13%
Click to enlarge
ETFs with highest expense ratio
Fund Name Ticker Net Assets Exp. Ratio
GS Connect S&P GSCI Enh Commodity TR ETN GSC 63.58M 1.25%
United States 12 Month Natural Gas UNL 32.43M 1.12%
GreenHaven Continuous Commodity Index GCC 239.41M 1.10%
Claymore/Zacks Dividend Rotation IRO 7.80M 0.99%
Market Vectors Gulf States Index ETF MES 10.78M 0.98%
Market Vectors Vietnam ETF VNM 131.00M 0.96%
Direxion Daily Real Estate Bull 3X Shrs DRN 62.99M 0.96%
Ultra S&P500 ProShares SSO 1.50B 0.95%
Ultra QQQ ProShares QLD 843.00M 0.95%
UltraShort MidCap400 ProShares MZZ 43.50M 0.95%
Ultra Dow30 ProShares DDM 382.90M 0.95%
Ultra MidCap400 ProShares MVV 137.12M 0.95%
Short S&P500 ProShares SH 1.49B 0.95%
Short QQQ ProShares PSQ 178.72M 0.95%
Short Dow30 ProShares DOG 245.60M 0.95%
UltraShort QQQ ProShares QID 918.50M 0.95%
UltraShort Dow30 ProShares DXD 552.69M 0.95%
Short MidCap400 ProShares MYY 33.25M 0.95%
Ultra Russell2000 ProShares UWM 215.49M 0.95%
Ultra SmallCap600 ProShares SAA 57.13M 0.95%
Click to enlarge

One could go wild now in comparing actual returns in relation to the fees charged and referencing those to the general benchmark index S&P 500, something we will publish in an upcoming paper (please email us if you would like some preliminary info on this). For the sake of brevity, let’s compare the least and most expensive ETFs and examine the returns versus the benchmark.

To add a bit of Schadenfreude to this week’s Senate hearings and the questioning of Goldman Sachs (NYSE:GS) executives, the most expensive ETF in the list is incidentally run by Goldman Sachs. Judge for yourself how it performed compared to the least expensive ETF and the benchmark.

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12-Month Returns
12-month
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24-Month Returns
24-month
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More On ETFs
I’d like to share these two fascinating charts, courtesy of etfreplay.com

The first one depicts the performance (including all dividends) of 3 related ETFs and their comparative returns. The 2x leveraged ETF achieves approximately double the returns whereas the 3x leveraged ETF nearly tripled the returns of the underlying. For relatively short time horizons this works well as seen below.

ETF-Good

As you might have guessed, all things aren’t equal and certain ETFs are doing a particularly bad job in fulfilling what some brokers call the “naïve investor expectations”. The example below shows a particularly poor performance of the leveraged ETFs in comparison to the underlying. Caveat Emptor.

ETF-Bad

Good luck and good investing.

Disclosure: No positions