Look At What’s Inside ETFs, Not At Minor Differences In Expense Ratios, Analyst Advises
What’s actually in an exchange-traded fund is what matters, not minor differences in costs, he says in a report. To illustrate the point, Rosenbluth compares State Street’s Consumer Discretionary Select SPDR Fund (XLY) with Vanguard Consumer Discretionary Index Fund (VCR).
Each ETF holds Comcast, Walt Disney, Ford, McDonald’s and Nike. Vanguard puts 19% of its assets into those five and spreads the rest among 365 other stocks, while the XLY had 26% in those stocks with 75 other holdings.
The Vanguard fund is about one-fifth invested in small- and mid-cap stocks, while the XLY has 6% in mid-caps. Rosenbluth concludes that “XLY is the better alternative” in terms of large-cap investment, according to Barron’s.
The two funds have turned in similar performances so far this year, but that could change if smaller stocks start to separate from the rest of the market, Rosenbluth says, and the expense ratio differences are relatively minor.