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It may be premature to hit the print button for the death certificate of active management, but changes to the investing landscape over the last several years have forced a reassessment of the value proposition this strategy offers. Research suggesting that active managers fail to add value is, of course, nothing new. Over the last several decades, a number of academic studies have suggested that on the whole, active managers fail to consistently beat the market, and that the majority of mutual funds fail to beat their benchmark after costs are taken into consideration. This frustration with the costs of active management paved the way for the rise of indexing as an investment strategy, as many investors have preferred to own the market through a low cost vehicle rather than pay hefty fees to a manager to occasionally beat the market.

ETFs have become tremendously popular among active traders implementing sophisticated and high-turnover strategy. But the ETF vehicle was originally designed with the cost-conscious buy-and-holder in mind, offering a way for investors frustrated with the inability of active managers to consistently beat their benchmark to avoid what Vanguard founder Jack Bogle has called the “tyranny of compounded costs.” At their core, ETFs are an alternative to traditional actively-managed mutual funds, providing an option for investors who would rather own the market than pay someone to try to beat it.

Many investors have already completed or begun the process of converting their mutual fund assets to comparable ETFs, often slashing their effective expense ratio in the process. Below, we profile ETF alternatives for some of the largest mutual funds in the world–securities that account for more than $1 trillion in assets. The ETF alternatives are determined by examining the index against which each mutual fund is benchmarked, and identifying ETFs that seek to passively replicate that same index.

The ETFdb Mutual Fund To ETF Converter currently includes nearly 20,000 mutual funds, offering up ETF alternatives for each that are generally more cost efficient. In addition to “best fit” ETF options, this free tool also directs investors to ETFs included in the same ETFdb Category as the mutual fund’s benchmark.

1. PIMCO Total Return Fund (PTTRX)

This fund run by legendary fixed income investor Bill Gross is the largest mutual fund by total assets in the world, currently standing at about $250 billion. PTTRX is benchmarked against the Barclays Capital U.S. Aggregate Bond Index, a broad-based index designed to measure the performance of the U.S. investment grade bond market. Currently, there are three ETFs that seek to replicate this index:

  • iShares Barclays Aggregate Bond Fund (NYSEARCA:AGG): Expense ratio of 0.24%
  • Vanguard Total Bond Market ETF (NYSEARCA:BND): Expense ratio of 0.14%
  • SPDR Barclays Aggregate Bond ETF (NYSEARCA:LAG): Expense ratio of 0.1345%

In addition, Grail offers an actively-managed ETF that seeks to beat the performance of the same index; the Grail McDonnell Core Taxable Bond ETF (NYSEARCA:GMTB) charges an expense ratio of just 0.35%–lower than all share classes of the PIMCO Total Return Fund. There are also nine other ETFs in the Total Bond Market ETFdb Category, each offering broad exposure to the investment grade bond market.

Various share classes of PIMCO’s total return fund charge expense ratios between 0.46% and 1.65%, meaning that total annual management fees are more than $1.2 billion. A similar level of assets in LAG would generate annual fees of only about $339 million, a savings of more than $700 million annually.

Other Mutual Fund Share Classes: PTTAX, PTRAX, PTTBX, PTTCX, PTTDX, PTTRX, PTTPX, PTRRX

2. Growth Fund Of America (CGFAX)

This fund attempts to generate returns by investing in common stocks of companies that appear to offer superior opportunities for growth in capital. CGFAX is benchmarked against the S&P 500 Index, one of the most popular indexes in the world, which measures the performance of the large cap sector of U.S. equities. There are currently three ETFs that offer exposure to this popular index:

  • iShares S&P 500 Index Fund (NYSEARCA:IVV): Expense ratio of 0.09%
  • SPDR S&P 500 (NYSEARCA:SPY): Expense ratio of 0.09%
  • Vanguard S&P 500 ETF (NYSEARCA:VOO): Expense ratio of 0.06%

There are also a number of ETFs that offer exposure to large cap equities, with more than two dozen products in the Large Cap Blend Equities ETFdb Category.

The expense ratios on the assorted share classes of CGFAX range from 0.34% to 1.53%, meaning that the total annual management fees are at the very least $531 million. The same level of assets in VOO would only generate fees of $94 million, a savings of over $425 million annually.

Other Mutual Fund Share Classes: CGFAX, CGFBX, CGFCX, CGFEX, CGFFX, AGTHX, AGRBX, GFACX, GFAFX, GFFFX, RGAAX, RGABX, RGACX, RGAEX, RGAFX, RGAGX

3. Fidelity Cash Reserves (FDRXX)

Many of the largest open end mutual funds are money market funds. These products invest primarily in high quality short-term debt securities, and are designed to preserve capital while offering limited credit and market risk. Money market funds seek to maintain a stable $1.00 net asset value–basically to never lose money.

There are no true “money market ETFs,” but there are several exchange-traded products that invest in low risk short-term fixed income securities, essentially serving as alternatives to cash. Currently, there are six ETFs in the Money Market ETFdb Category, including:

  • iShares Barclays Short Treasury Fund (NYSEARCA:SHV)
  • SPDR Barclays Capital 1-3 Month Treasury Bill ETF (NYSEARCA:BIL)
  • PIMCO Enhanced Short Maturity ETF (NYSEARCA:MINT)

PIMCO’s MINT is an actively managed product, described by the company as a fund that seeks “greater income and total return potential than money market funds, and may be appropriate for non-immediate cash allocations.” MINT charges an expense ratio of 0.35%, while the average for the ETFdb Category is 0.23%.

4. Vanguard Total Stock Market Index (VITSX)

Many investors associate mutual funds with active management and ETFs with passive indexing strategies. But just as there are many ETFs that are actively-managed, a number of index mutual funds seek to replicate benchmarks (so any comparison of “ETFs vs. Active Management” or “Mutual Funds vs. Indexing” doesn’t make much sense).

This Vanguard mutual fund seeks to replicate the performance of the MSCI U.S. Broad Market Index, a benchmark that represents more than 99% of the total market capitalization of all U.S. common stocks. The ETF that seeks to replicate this index, the Vanguard Total Stock Market ETF (NYSEARCA:VTI), is actually a separate share class of the mutual fund–a unique attribute of Vanguard products that is protected by a patent. Beyond VTI, there are about 20 other ETFs in the All Cap Equities ETFdb Category.

Generally, ETFs offer lower expense ratios than mutual funds, but the institutional share class of this fund is actually cheaper (0.06%) than the ETF shares (0.07%). Expense ratios for other mutual fund share classes run as high as 0.18%, meaning that the cost savings offered by a potential ETF conversion are minimal for this mutual fund (the average for ETFs in the All Cap Equities category is 0.35%).

Other Mutual Fund Shares Classes: VTSAX, VTSMX, VTSSX

5. American Funds EuroPacific Growth (CEUAX)

This mutual fund is a popular option for international equity exposure, and is benchmarked against the MSCI All Country World ex-U.S. Index , which measures the performance of global equity markets, excluding the United States. Presently, there are two ETFs that passively replicate this index:

  • iShares MSCI ACWI ex US Index Fund (NASDAQ:ACWX): Expense ratio of 0.35%
  • SPDR MSCI ACWI ex-US ETF (NYSEARCA:CWI): Expense ratio of 0.34%

In addition, there are 19 ETFs in the Global Equities ETFdb Category, many of which have similar exposure to this mutual fund.

The various share classes of CEUAX feature expense ratios between the range of 0.52% and 1.71%. The means that the annual management fees are more than $550 million; an identical amount of assets in CWI would cost only $360 million annually.

Other Mutual Fund Share Classes: CEUBX, CEUCX, CEUEX, CEUFX, AEPGX, AEGBX, AEPCX, AEGFX, AEPFX, RERAX, RERBX, RERCX, REREX, RERFX, RERGX

6. Vanguard 500 Index (VFIAX)

This Vanguard mutual fund is another indexed product, seeking to match the performance of the S&P 500 Index.

  • iShares S&P 500 Index Fund (IVV): Expense ratio of 0.09%
  • SPDR S&P 500 (SPY): Expense ratio of 0.09%
  • Vanguard S&P 500 ETF (VOO): Expense ratio of 0.06%

VFIAX has a leg up on many mutual funds, as its expenses range from 0.07% to just 0.18%, while these figures do not quite meet the standards set by VOO, they are relatively competitive rates in the mutual fund world.

Other Mutual Fund Share Classes: VFINX, VIFSX

7. Vanguard Total Bond Market Index (VBMFX)

This broad-based bond fund seeks to replicate the Barclays Capital U.S. Aggregate Bond Index, the same index against which PIMCO’s total return fund is benchmarked. As mentioned above, there are three ETFs that replicate this same index:

  • iShares Barclays Aggregate Bond Fund (AGG): Expense ratio of 0.24%
  • Vanguard Total Bond Market ETF (BND): Expense ratio of 0.14%
  • SPDR Barclays Aggregate Bond ETF (LAG): Expense ratio of 0.13%

Following Vanguard’s core value of low-cost investing, the share classes of this fund have expenses ranging from 0.07% to 0.22%, another inexpensive fund in the mutual fund world.

Other Mutual Fund Share Classes: VBTLX, VBTIX, VBMFX, VBTSX

8. American Funds Capital World G/I (CWIAX)

This international equity mutual fund is benchmarked against the MSCI World Index, which represents the performance of stocks in developed market countries (including the U.S.) available for purchase by global investors. Though there are no ETFs that track this specific benchmark, there are 19 ETFs in the Global Equities ETFdb Category that will provide similar exposure for investors; such funds include MSCI All Country World Index Fund (NASDAQ:ACWI) and SPDR MSCI ACWI ex-US ETF (CWI).

From an expense perspective, the various share classes of CWIAX charge between 0.49% and 1.69%, causing annual fees to rack up to at least $400 million. A similar level of assets in CWI would accrue annual fees of $275 million, a savings of $125 million.

Other Mutual Fund Share Classes: CWIBX, CWICX, CWIEX, CWIFX, CWGIX, CWGBX, CWGCX, CWGFX, WGIFX, RWIAX, RWIBX, RWICX, RWIEX, RWIFX, RWIGX

9. American Funds Capital Income Builder (CIRAX)

This mutual fund is a popular option for those seeking exposure to U.S. stocks, and also uses the S&P 500 as its benchmark. As such, investors looking to simply track this index have a number of low-cost options:

  • iShares S&P 500 Index Fund (IVV): Expense ratio of 0.09%
  • SPDR S&P 500 (SPY): Expense ratio of 0.09%
  • Vanguard S&P 500 ETF (VOO): Expense ratio of 0.06%

The minimum expense ratio charged by a share class of CIRAX comes in at 0.36%, while the max fees hit 1.55%. Annual fees on the cheapest share class of CIRAX add up to roughly $285 million, while similar assets in VOO would rack up fees of just $50 million.

Other Mutual Fund Share Classes: CIRBX, CIRCX, CIREX, CIRFX, CAIBX, CIBBX, CIBCX, CIBFX, CAIFX, RIRAX, RIRBX, RIRCX, RIREX, RIRFX, RIRGX

10. Fidelity Contrafund (FCNTX)

This fund’s strategy involves investing in companies whose value Fidelity believes is not fully recognized by the public, including both growth and value securities. FCNTX is also benchmarked against the S&P 500.

From an expense perspective, the two share classes of this fund charge 0.85% and 1.01%–typical for domestic equity mutual funds. As mentioned earlier, there are a wide variety of ETFs that fall into the Large Cap Blend Equities ETFdb category, giving investors a wide range of choice when seeking to replicate many of the world’s largest mutual funds.

Other Mutual Fund Share Classes: FCNKX

11. Income Fund Of America (CIMAX)

This mutual fund offers exposure to multiple assets classes, and the fund’s prospectus compares performance to multiple indexes. Those benchmarks include the S&P 500 Index and Barclays Capital U.S. Aggregate Bond Index.

As highlighted above, there are several ETFs that seek to replicate the S&P 500 Index, including IVV, SPY, and VOO. Moreover, there are more than 30 ETFs in the Large Cap Blend Equities ETFdb Category. For the bond exposure offered by this mutual fund, AGG and BND both seek to passively replicate the Barclays Capital U.S. Aggregate Bond Index–for as little as 0.14%.

Investors looking to replace this mutual fund with ETFs have two primary options. The first is to utilize the ETFs highlighted above, blending stock and bond exposure in a mix that is consistent with individual objectives. Another interesting option could be the Diversified Portfolio ETFdb Category, a group of ETFs that offer exposure to multiple asset classes and can serve as “one stop shop” portfolio builders.

Other Mutual Fund Share Classes: CIMBX, CIMCX, CIMEX, CIMFX, AMECX, IFABX, IFACX, IFAFX, AMEFX, RIDAX, RIDBX, RIDCX, RIDEX, RIDFX, RIDGX

12. Investment Company Of America (CICAX)

CICAX follows suit by tracking the S&P 500 to generate returns for its investors, with three primary ETF alternatives available for this fund:

  • iShares S&P 500 Index Fund (IVV): Expense ratio of 0.09%
  • SPDR S&P 500 (SPY): Expense ratio of 0.09%
  • Vanguard S&P 500 ETF (VOO): Expense ratio of 0.06%

The various share classes of CICAX charge expenses in a range between 0.33% and 1.53%, making the minimum for annual fees come in at $200 million, compared to the $36 million that VOO would charge if it had a similar level of assets. Again, investors looking for more options similar to the ETFs listed above can check out our Large Cap Blend Equities ETFdb category for a full list.

Other Mutual Fund Share Classes: CICBX, CICCX, CICEX, CICFX, AIVSX, AICBX, AICCX, AICFX, ICAFX, RICAX, RICBX, RICCX, RICEX, RICFX, RICGX

13. Vanguard Emerging Markets Stock Index (VEIEX)

This fund offers a low cost method to gain exposure to 21 emerging market countries, including Brazil, Russia, India, and China. VEIEX tracks the MSCI Emerging Markets Index, an index against which many actively managed emerging markets mutual funds are benchmarked.

  • iShares MSCI Emerging Index Fund (NYSEARCA:EEM): Expense ratio of 0.72%
  • Vanguard Emerging Markets ETF (NYSEARCA:VWO): Expense ratio of 0.27%

Along with these two primary options, there are 52 ETFs that fall under out Emerging Markets Equities ETFdb Category, leaving no shortage of ETF options for exposure to equities of developing markets. Predictably, Vanguard remains competitive with its fees, charging a range from 0.23% to 0.40%, again highlighting the rare occasion that a mutual fund’s expenses are comparable to an ETF’s.

Other Mutual Fund Share Classes: VEMAX, VEMIX, VERSX

14. Franklin Income (FKINX)

Franklin’s Income Fund also offers exposure to multiple asset classes, comparing performance to both the S&P 500 and the Barclays Capital U.S. Aggregate Bond Index. Investors can create exposure to these benchmarks with a blend of VOO and BND, resulting in an expense ratio between 0.07% and 0.14%.

As far as expenses are concerned, the share classes of FKINX charge anywhere from 0.53% to 1.53%, meaning that even the cheapest option will cost considerably more than an easy-to-assemble combination of ETFs linked to the underlying benchmarks.

Other Mutual Fund Share Classes: FRIAX, FBICX, FICBX, FCISX, FISRX

Disclosure: No positions

Disclaimer: ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships.

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Source: ETF Alternatives to the World’s Largest Mutual Funds