1

This Forbes article says: "The iShares fund from BlackRock ticker ITOT will over the course of a decade chip only $6 out of a $10,000 investment."

How is this $6 calculated?

The web page for the fund says: "Expense Ratio: 0.03%". Does this mean $3 yearly for 10,000 investment? Wouldn't this mean $30 in 10 years?

  • .03% of $10k over 10 years is indeed $30. – Bob Baerker Jan 14 at 14:28
  • In some funds, drag is lower than the expense ratio (for example, lending shares of the component equities to short sellers typically generates some income which can pay part of the expenses). I don't know if that's what is going on in this particular calculation. – Ben Voigt Jan 14 at 15:32
  • Maybe you should link to the Forbes article that makes this assertion. – quid Jan 14 at 18:39
  • @BobBaerker - wondering, since $10K would grow over the 10 years, do you think the $60 includes the expense on the increasing value? Just guessing. – JTP - Apologise to Monica Oct 13 at 1:29
  • @JoeTaxpayer - I'll defer to you on this one since I don't know much about the inner workings of an ETF. – Bob Baerker Oct 13 at 12:56
2

Looking at the linked article: Best ETFs For Investors 2018

The table has a footnote:

Cumulative cost of holding a $10,000 position for a decade. Incorporates annual expense ratio, bid/ask spreads and cost offset from securities lending.

That leads to an interesting paragraph later on:

Who’s got the cheapest ETF covering the whole U.S. stock market? The iShares family from BlackRock wins this prize, with a fund (ticker: ITOT) that, over the course of a decade, will chip only $6 out of a $10,000 investment. For inflation-protected bonds, Schwab is the place to go, with an $85 cost over ten years for its TIPS fund (SCHP). In small foreign stocks, Vanguard stands out. It has an index fund (VSS) that is so efficient the cost is negative.

In fact in the table with the footnote there is a fund with a negative cumulative cost.

following the links to the Best ETFs: The Honor Roll

The category for mid- and small-cap foreign stocks is another one with eye-opening differences. Honor Roll member Vanguard FTSE All-World ex-U.S. Small Cap (VSS) has a cost of -$223 and Schwab International Small-Cap Equity (SCHC) is listed here with $20. The category laggard, from Hartford, will run you $673.

Now back to the first page: Best ETFs For Investors 2018

Our cost formula has three elements. One is the expense ratio reported in the fund’s prospectus. Next is the bid/ask spread maintained by market makers in the ETF. The third item is something you won’t find in other ETF ratings: the cost offset that the fund manager delivers to you by lending securities to short-sellers.

Securities lending is a big business, yielding $777 million a year to investors in Best ETFs. In a portfolio of small-company, foreign or speculative shares, it can exceed the expense ratio. That’s how Vanguard FTSE All-World ex-U.S. Small-Cap (VSS) wound up with a ten-year holding cost of -$223 per $10,000 invested.

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