I personally invest in Exchange Traded Funds (ETFs) in both my traditional IRA and my Roth IRA. ETFs allow investors to put money into a wide variety of investments at expense ratios that are usually well below those of mutual funds. But just because many ETFs have lower expense ratios than their mutual fund cousins doesn’t mean they’re as low as they could be. A lot of them out there are far too expensive.
Thankfully, BlackRock recently overhauled its core lineup of ETFs by launching four new ones and repositioning six existing ETFs with expense ratios that are very low. I mean WAY low. So now, the choice is obvious (for me) when investing my hard-earned money: the new iShares Core ETFs provide broad, diversified coverage AND are less expensive — two key components that make a healthier portfolio (read my book review of How A Second Grader Beats Wall Street). But before you move your money from an existing ETF or other investment, you may have other factors to consider including tax consequences and any transaction costs in your decision-making process.
10 New iShares ETFs
The 10 new iShares ETFs from BlackRock cover three major asset classes, have a really aggressive pricing structure and make up the new “iShares Core”. What’s unique about this move is that it essentially eliminates the pricing differences between the major ETFs from iShares, Vanguard, and Charles Schwab.
Now, the real difference between these three ETF families boils down to how they’re indexed (adjusting how an investment is weighted so that it matches an index such as the S&P 500) because once the expense ratio drop to 0.10%, any further reduction doesn’t produce significantly measurable results for investors. So, when expense levels fall to the 0.10% range (or less), other factors become more important. Factors such as indexing methodology and frequency, transaction costs, and the fund’s distribution policies.
The new iShares Core ETFs track indexes well known and loved by US investors, namely S&P indexes for domestic equities and Morgan Stanley Capital International (MSCI) indexes for international stocks.
The four new iShares Core ETFs were launched back in October of last year. I’ve listed them here, with the underlying index, the fund’s expense ratio, and a link to the fund’s overview page:
- IXUS will track the MSCI ACWI ex-USA Investable Market Index with a 0.16% expense ratio.
- IEFA will track the MSCI EAFE Investable Market Index with a 0.14% expense ratio.
- IEMG will track the MSCI Emerging Markets Investable Market Index with a 0.18% expense ratio.
- ISTB will track the Barclays U.S. Government/Credit 1-5 Year Bond Index with a 0.12% expense ratio.
Six renovated iShares Core ETFs (effective Oct. 17) with expense ratios and links to overview pages:
- ITOT, 0.07%, previously named the iShares S&P 1500 Index Fund.
- IVV, 0.07%, previously named the iShares S&P 500 Index Fund.
- IJH, 0.15%, previously named the iShares S&P MidCap 400 Index Fund.
- IJR, 0.16%, previously named the iShares S&P SmallCap 600 Index Fund.
- AGG, 0.08%, previously named the iShares Barclays Aggregate Bond Fund.
- ILTB, 0.12%, previously named the iShares 10+ Year Government/Credit Bond Fund.
BlackRock has two PDF files explaining how their new “core” works:
- Strengthen Your Core With iShares ETFs (pdf)
- A Closer Look At iShares Core (pdf)
The fact sheet and prospectus for each of these ETFs is available at the overview links I’ve listed above.
I personally invest and currently hold positions in ITOT, IXUS and AGG, along with one not listed above, HDV (iShares High Dividend ETF with an expense ration of 0.4%). I’m hoping they reduce the fees on HDV as well!
So, check out the new ETFs from BlackRock. You may find that your own portfolio can grow much faster when the fees you WERE paying are now at work for you.