ETFs are known for having low fees. We take a look at the ETFs charging over 0.8%.
One of the key attractions of exchange-traded funds (ETFs) is their low fees. However, not all ETFs are cheap. As the table below shows, several ETFs available on interactive investor have an ongoing charge of 0.8% or more. That’s a figure you’d expect to see on the factsheet of an actively managed open-ended fund or trust, not an ETF.
The most expensive ETF on the list is Almalia Sanlam Active Shariah Global Equity ETF (LSE: AMAL), charging 0.99%. This ETF, however, is unique. Unlike most other ETFs, it does not passively track an index. Instead, it is actively managed and investment decisions are made regarding which shares the ETF will track.
An active ETF may sound like an oxymoron, as most ETFs passively track an index. However, it is important to remember that ETFs are simply a “structure”, or a wrapper, and how the portfolio it contains is managed can vary. In the case of this ETF, the portfolio’s stocks are selected by a team at Sanlam Investment Managers, much like they would be in a traditional fund or investment trust.
While actively managed ETFs have increased in popularity in the US in recent years, they are still much rarer in the UK and Europe. The Sanlam ETF is one of the few available this side of the Atlantic.
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The ETF employs a typical growth strategy, with a concentrated portfolio of 20 to 35 companies. The fund focuses on companies with high returns on capital, low leverage, sustainable competitive advantages and high free cash flow, with a screen excluding companies that are incompatible with Islamic principles. Its largest holdings include Alibaba (NYSE:BABA), Roche (SIX: ROG), Novartis (SIX: NOVN), Johnson & Johnson (NYSE: JNJ) and Sanofi (EURONEXT:SAN).
Ultimately, time will tell whether its performance will justify its fee.
Several ETFs on the list are those focused on obscure and less invested parts of the market. For example, the second most expensive is the Xtrackers S&P Select Frontier Swap ETF (LSE: XSFD), charging 0.95%. This ETF tracks the S&P Select Frontier index, which tracks the 40 largest companies from frontier markets. Such markets are highly illiquid and hard to get exposure to. On top of this, there is also less price competition – on interactive investor it is the only fund offering passive exposure to frontier markets.
Several of the frontier markets represented in the index are also individually tracked by expensive ETFs. For example, the Xtrackers FTSE Vietnam Swap ETF (LSE:XVTD) and the Xtrackers MSCI Pakistan Swap ETF 1C USD (LSE:XBAK) both charge 0.85%. Being frontier markets, the stocks in these indices are usually very illiquid. For investors who want passive exposure to these countries, there exists no obvious passive alternatives.
There are several ETFs that track niche thematic indices. For example, the EMQQ Emerging Markets Internet & Ecommerce ETF (LSE:EMQQ) charges 0.86% and the Medical Cannabis and Wellness ETF (LSE:CBDX) 0.8%. Over the past year, EMQQ and the medical cannabis ETF have doubled investors’ money. With performance like that, many investors are unlikely to care much about higher fees.
However, there are some potential cheaper alternatives. When it comes to cannabis ETFs, a rival is the Rize Medical Cannabis & Life Science ETF (LSE:FLWR). This also tracks the medical cannabis theme (albeit via a different index) and charges 0.65%.
When it comes to EMQQ, there is no straightforward alternative. As the name of the ETF suggests, it provides access to emerging market internet companies. However, the majority of the ETF's exposure is Chinese tech, as China is now a world leader in tech. If the investor simply sees EMQQ as a vehicle to access the China tech theme, then a potential alternative could be the KraneShares CSI China Internet ETF USD (LSE:KWEB), which is slightly cheaper at 0.75%.
For some of the ETFs, however, there is much less justification for investors to be paying such high costs. For example, the L&GE Fund MSCI China A ETF GBP (LSE:CASE) charges 0.88% to track the MSCI China A Onshore Index. This index “captures large and mid-cap representation across China securities listed on the Shanghai and Shenzhen exchanges”.
There is no other ETF tracking this specific China index on interactive investor. However, there are some that track very similar indices for much lower costs.
For instance, there are several ETFs that track smaller and more restricted China A-shares indices (A-shares are Chinese companies listed on Chinese exchanges). For example, the iShares MSCI China A ETF (LSE:CNYA), which charges 0.4% and the HSBC MSCI China A Inclusion ETF GBP (LSE:HMCA), which costs 0.3%, both track the MSCI China A Inclusion Index. There is also the Lyxor Hwabao WP MSCI China A DR ETF Acc (LSE:CNAA), which charges 0.35% to track the MSCI China A Index.
Of course, if investors specifically want exposure to the MSCI China A Onshore Index, sticking with the L&GE Fund MSCI China A ETF may make sense. But if general China A-shares exposure is what investors are after, they may want to consider one of the cheaper alternatives.
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Several India-focused ETFs are also on the list. The Amundi IS MSCI India ETF-C USD (LSE: CI2G), charges 0.8% and Lyxor MSCI India ETF (LSE:INRU) charges 0.85%. You’d expect India-focused ETFs to cost more than US or Europe-focused ETFs. However, the two mentioned ETFs are still a fair bit more expensive than other India ETF alternatives.
For example, the iShares MSCI India ETF USD Acc GBP (LSE:IIND) charges 0.65%. This ETF tracks the MSCI India index, the same index as the two mentioned above. Investors simply looking for passive Indian equity exposure rather than specifically the MSCI India index, have an even cheaper option: the Franklin FTSE India UCITS ETF (LSE:FLXI), which charges just 0.19%.
Also on the list is Xtrackers Nifty 50 Swap ETF (LSE:XNID), which charges 0.85%. This tracks a local Indian index, the Nifty 50. This is the only ETF providing exposure to this index. So, if an investor is looking specifically for exposure to this index, it may make sense. However, if the investor just wants Indian equity exposure, this high-fee ETF is not the best option.
Finally, there is the First Trust Emerging Markets AlphaDEX® ETF A Acc (LSE:FEMU), which charges 0.8%. The ETF tracks the Nasdaq AlphaDEX Emerging Markets Index. This is also a relatively niche index, so again, if an investor is dead set on this index, it may be justified.
As the name suggests, the index is focused on emerging market stocks. However, it applies both a growth and value screen. For example, it screens for stocks on growth factors such as recent price appreciation, sales to price and on-year sales growth. Separately, it screens for stocks on value factors such as book value to price, cash flow to price and return on assets.
ETFs with ongoing charges higher than 0.8%
|Almalia Sanlam Active Shariah Glb Eq ETF||AMAL||0.99|
|Xtrackers S&P Select Frntr Swap ETF||XSFD||0.95|
|L&GE Fund MSCI China A ETF||CASE||0.88|
|EMQQ Emerging Mkts Internet&Ecomm ETFAcc||EMQQ||0.86|
|iShares MSCI EM Islamic ETF USD Dist||ISDE||0.85|
|Xtrackers FTSE Vietnam Swap ETF||XVTD||0.85|
|Xtrackers Nifty 50 Swap ETF||XNID||0.85|
|Xtrackers MSCI Pakistan Swap ETF||XBAK||0.85|
|Lyxor MSCI India ETF Acc USD||INRU||0.85|
|Amundi IS MSCI India ETF-C USD||CI2G||0.80|
|First Trust Em Mkts AlphaDEX® ETF A Acc||FEMU||0.80|
|Medical Cannabis and Wellness ETF Acc||CBDX||0.80|
|L&G ROBO Global Rbtc and Atmtn ETF||ROBE||0.80|
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