The recent rise of passive and smart beta strategies has resulted mainly from the success of ETFs. On paper, these products provide a transparent and cheap access to financial markets. In practice however, things may not be that simple.
This study1 examined the total cost of ownership involved in investing in ETFs based on plain vanilla equity, bond and commodity indices available to European investors. Total cost of ownership not only includes the official total expense ratio of a fund, but also accounts for the impact of bid-ask spreads, and shortfall versus the index that is being tracked.
Investments of either 10,000 or 1 million euros are considered. Total cost of ownership for a one-year holding period is estimated to range from 0.4 to 1.4% for equity ETFs, 0.2 to 0.5% for government and high-grade bond ETFs, 0.5 to 0.8% for high-yield ETFs, and 1.0 to 1.6% for commodity ETFs.
These costs are probably higher than many investors would expect to pay for what are supposed to be very cheap passive solutions.
1 Layes, ‘Total Cost of Ownership of ETFs’, presentation at Robeco 10th Knowledge Center conference, 2017.
The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).
The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.