Exchange traded funds have become a popular way to spread a portfolio, because a single tradable security buys exposure to whole market segments or individual sectors. One of their main attractions is that they usually cost less than traditional mutual funds. For an investor, then, the management fee matters, and it is expressed as an annual expense ratio.
A lower expense ratio feeds straight through to the return, especially in passively managed index funds whose strategy simply tracks a set benchmark. Even small differences in cost can, through compounding, grow into a meaningful gap in the result over long horizons. This article looks for the ETFs with the lowest expense ratio across the main asset classes: the S&P 500 and Nasdaq 100 indices, European equities, bonds, commodities and clean energy.
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The cheapest S&P 500 ETFs
For broad exposure to the US equity market, ETFs tracking the S&P 500 are among the most popular choices. The cheapest funds are SPDR Portfolio S&P 500 ETF (SPLG) at an expense ratio of 0.02%, Vanguard S&P 500 ETF (VOO) and iShares Core S&P 500 ETF (IVV) both at 0.03%, and SPDR S&P 500 ETF Trust (SPY) at a higher 0.0945%.
VOO and IVV run considerably more assets than SPLG, which improves their liquidity. SPLG is nonetheless large enough that liquidity will not trouble an ordinary investor.
The gap between SPLG (0.02%) and VOO/IVV (0.03%) is small, but over long horizons it can amount to a visible difference.
| Symbol | Fund name | Expense ratio |
|---|---|---|
| SPLG | SPDR Portfolio S&P 500 ETF | 0.02% |
| VOO | Vanguard S&P 500 ETF | 0.03% |
| IVV | iShares Core S&P 500 ETF | 0.03% |
| SPY | SPDR S&P 500 ETF Trust | 0.0945% |
- When buying through a broker, check that the specific fund is available and what the dealing charges are.
- SPY costs more but has historically been the most liquid, which suits short-term strategies and options.
- For long-term holding, SPLG is the natural pick on cost alone.
The cheapest Nasdaq 100 ETFs
For investors leaning towards technology, ETFs tracking the Nasdaq 100 are the obvious route. Here Invesco NASDAQ 100 ETF (QQQM) stands out as the cheaper alternative to the better-known Invesco QQQ Trust (QQQ). QQQ charges 0.18%, QQQM 0.15%.
QQQ runs far more assets than QQQM, which helps liquidity for large investors. QQQM is nevertheless big enough for an ordinary account.
The 0.03 percentage point difference between QQQM and QQQ can add up to a real saving over a long horizon.
| Symbol | Fund name | Expense ratio |
|---|---|---|
| QQQM | Invesco NASDAQ 100 ETF | 0.15% |
| QQQ | Invesco QQQ Trust | 0.18% |
The cheapest European equity ETFs
European equities are messier, because there is a wider range of indices and funds across different markets. For US-based investors, Vanguard FTSE Europe ETF (VGK) at 0.06% is a strong option, tracking FTSE Developed Europe. Other low-cost choices are iShares Core MSCI Europe ETF (IEUR) and JPMorgan BetaBuilders Europe ETF (BBEU) at 0.09%.
For European investors there are UCITS ETFs tracking the Euro Stoxx 50 at lower cost still, for example Invesco EURO STOXX 50 UCITS ETF Acc or HSBC EURO STOXX 50 UCITS ETF EUR (Acc), both around 0.05%.
| Symbol | Index tracked | Expense ratio |
|---|---|---|
| VGK | FTSE Developed Europe | 0.06% |
| IEUR | MSCI Europe | 0.09% |
| BBEU | MSCI Europe | 0.09% |
| UCITS on EURO STOXX 50 | EURO STOXX 50 | 0.05 – 0.09% |
The cheapest bond ETFs
In bonds, the best options for broad exposure to the US market are Vanguard Total Bond Market ETF (BND) and iShares Core U.S. Aggregate Bond ETF (AGG), both at 0.03%. The same cost applies to Schwab U.S. Aggregate Bond ETF (SCHZ) and iShares Core Total USD Bond Market ETF (IUSB). Vanguard also runs several specialised bond ETFs at the same ratio covering different duration profiles.
BND and AGG pair very low cost with enormous size, which confirms both their popularity and their liquidity.
| Symbol | Bond market segment | Expense ratio |
|---|---|---|
| BND | Total bond market | 0.03% |
| AGG | Total bond market | 0.03% |
| SCHZ | Total bond market | 0.03% |
| IUSB | Total bond market | 0.03% |
| BSV | Short-term bonds | 0.03% |
| BIV | Intermediate-term bonds | 0.03% |
| BLV | Long-term bonds | 0.03% |
The cheapest commodity ETFs
Among commodity ETFs, abrdn Bloomberg All Commodity Strategy K-1 Free ETF (BCI) at 0.26% is a relatively cheap route to broad commodity exposure. For gold specifically, the physically backed iShares Gold Trust Micro (IAUM) and SPDR Gold MiniShares Trust (GLDM) charge 0.09% and 0.10%.
IAUM is the cheapest way into gold, though GLD and IAU run far more assets, which can mean better liquidity for larger investors.
| Symbol | Commodity exposure | Expense ratio |
|---|---|---|
| IAUM | Gold | 0.09% |
| GLDM | Gold | 0.10% |
| BCI | Broad commodities | 0.26% |
| PDBC | Broad commodities | 0.59% |
The cheapest clean energy ETFs
Expense ratios on clean energy ETFs run higher than on broad index funds. The relatively low-cost option here is iShares Global Clean Energy ETF (ICLN) at between 0.41% and 0.46%. For comparison, broader energy ETFs such as XLE and VDE cost far less but are not focused on renewables.
| Symbol | Focus | Expense ratio |
|---|---|---|
| ICLN | Global clean energy | 0.41 – 0.46% |
| QCLN | US clean energy | 0.59% |
| XLE | Broader energy sector | 0.08% |
| VDE | Broader energy sector | 0.09% |
The long-run effect of fees on returns
A lower expense ratio feeds directly into the result, especially in passive ETFs. Even small differences can, through compounding, become a meaningful gap in the final value over ten to twenty years.
The model below shows how different annual expense ratios affect the outcome of a single lump sum over 30 years. The assumptions:
- Holding period: 30 years
- Average annual gross return before fees: 7%
- Annual expense ratio: 0.02%, 0.09% and 0.5%
Model example, the long-run effect of the expense ratio on an investment
In the cheapest case (0.02% a year) the investment multiplies roughly 7.57 times over 30 years at a 7% annual return. At 0.09% a year it is 7.42 times, and in the most expensive case (0.5% a year) only 6.61 times. The final value is therefore about twelve percent lower than at a 0.02% fee.
How compounding and costs interact
Compounding means the gains of one year go on earning in the years that follow. Every year, though, even a small fee takes a slice of the return that can no longer compound. The effect of fees therefore accumulates and multiplies over time, and a seemingly small difference in the annual expense ratio can lead to a markedly different portfolio at the end.
The chart shows all three cases growing similarly at first, with the curves separating as time goes on. The gap becomes obvious mainly in the later years.
Conclusion
In the S&P 500 category SPLG, VOO and IVV dominate, with SPLG the cheapest at 0.02%. For the Nasdaq 100, QQQM (0.15%) beats the better-known QQQ (0.18%) on cost. In European equities, VGK (0.06%) stands out, while European investors can use UCITS ETFs on the Euro Stoxx 50.
The lowest expense ratio in each category
In bonds, the most efficient options are BND, AGG, SCHZ and IUSB, all at 0.03%. In commodities, IAUM (0.09%) and GLDM (0.10%) are the cheapest gold exposure while BCI (0.26%) offers a broader basket. In clean energy, ICLN is the relatively low-cost choice.
Choosing an ETF, though, takes more than the expense ratio. Tracking error, fund liquidity, size, the methodology of the index being tracked and your own objectives all belong in the decision.
What to watch for
- Liquidity: funds with larger assets, typically VOO or IVV, trade more easily and on tighter spreads.
- Availability: some ETFs, UCITS ones in particular, are easier for European investors to reach, though at higher charges with certain brokers.
- Tax: with commodity ETFs, watch how gains on physically backed funds are taxed in your country.