Markus Andrews

ETF Strategist

ETF Street
ETF Strategist

Exchange-traded funds tend to have lower fees relative to mutual funds, according to investment experts.
Fees are one of the few factors that people can control with investing.
ETFs don’t always win on fees, experts said. There are also cheap mutual funds available, largely index funds.

Businessperson reviewing pie charts and data analysis documents in an office setting.
Freshsplash | E+ | Getty Images

The trend is clear: Investors continue to seek out lower fees for investment funds.
The mass migration to cheaper funds has been a key driver of falling costs, according to Zachary Evens, a manager research analyst for Morningstar.  

Average annual fund fees have more than halved in the past two decades, to 0.36% in 2023 from 0.87% in 2004, Evens wrote.
And when it comes to fees, exchange-traded funds often beat their mutual-fund counterparts, experts said.  
The average ETF carries a 0.51% annual management fee, about half the 1.01% fee of the average mutual fund, according to Morningstar data.

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Here’s a look at other stories offering insight on ETFs for investors.

Some experts say comparing average ETF fees to those of mutual funds isn’t quite fair, because most ETFs have historically been index funds, not actively managed funds. Index funds are generally cheaper than active ones, which employ stock-picking tactics to try and beat the market; that means average ETF fees are naturally lower, experts said.
However, there’s a similar fee dynamic when comparing on a more apples-to-apples basis.

To that point, index ETFs have a 0.44% average annual fee, half the 0.88% fee for index mutual funds, according to Morningstar. Similarly, active ETFs carry a 0.63% average fee, versus 1.02% for actively managed mutual funds, Morningstar data show.
Investors pay this fee — a percentage of their fund holdings — each year. Asset managers pull it directly from client accounts.
“There are so many things you can’t control in investing,” said Michael McClary, chief investment officer at Valmark Financial Group. “The one thing you can control is fees.”
“I think it’s one of the key things people should care about,” he said.

‘Cheap mutual funds also exist’

ETFs and mutual funds are similar. They’re both baskets of stocks and bonds overseen by professional money managers, and offer ways to diversify your investments and access a wide range of markets.
ETFs are newer. The first U.S. ETF — the SPDR S&P 500 ETF Trust (SPY), an index fund tracking the S&P 500 stock index — debuted in 1993.
Mutual funds hold more than $20 trillion, about double the assets in ETFs. But ETFs have steadily increased their market share as investor preferences have changed.
While ETFs tend to be cheaper, on average, that’s not to say mutual funds are always more expensive.
“Cheap mutual funds also exist,” said Bryan Armour, director of passive strategies research for North America and editor of the ETFInvestor newsletter at Morningstar.

For example, some index mutual funds, like those that track “major” indexes such as the S&P 500, have competitive fees relative to similar ETFs, Armour said.
“It’s really just the core indexes where mutual funds compete more directly with ETFs on fees,” Armour said. “Other than that, I’d say ETFs are, generally speaking, cheaper.”
And, fees for newly issued mutual funds are declining while those of new ETFs are increasing, data shows.
The “fee gap” between newly launched mutual funds and ETFs shrank by 71% in the last decade, from 0.67% to 0.19%, according to Evens of Morningstar.
That’s largely due to “the emergence of active and alternative ETF strategies, which tend to be pricier than broad index strategies,” he said. More

Alistair Berg | Digitalvision | Getty Images

In the past decade, private investments exploded from $4 trillion to $14 trillion. Primarily led by institutional capital, investors poured money into private markets in their search for differentiated returns and alpha generation. This makes sense as alternative investments have consistently outperformed global public markets on 10-, 15-, and 20-year time horizons.
Now, the investor base is expanding to individuals. Bain estimates that assets under management in alternatives from individuals has risen to around $4 trillion and projects potential growth to $12 trillion in the next decade, a rapid expansion. Adding alternatives to portfolios requires careful consideration and we believe most individuals will opt to work with experienced advisors in that process.

Interested individuals should focus on three big themes in alternatives investing: the longer-term time horizons; sizing investments in amounts that effectively can be put aside; and diversification, across a portfolio and within alternative sleeves. This applies to individuals across wealth categories as new open-end funds expand access for high-net-worth investors.
For more than 20 years, I have been working with ultra-high-net-worth clients focused on growing and preserving their capital by investing in alternatives. We believe private market investments can help clients with the appropriate risk profile build a diversified portfolio. With recent product innovations, the most immediate opportunities will be for investors at higher wealth levels, but those opportunities continue to expand.
As more companies stay private for longer, a portfolio limited to public companies inevitably will miss market opportunities. The universe of U.S. public companies has declined 43% since 1996, while the number of US private equity (PE) backed companies has increased five-fold since 2000. Fewer than 15% of companies with revenues over $100 million are public.
This means individual investors have narrower exposure to growing businesses in the broad economy by investing solely in public markets. We believe this trend of companies choosing to stay private is expected to continue, owing to greater control and flexibility, lower regulatory reporting requirements, and better access to capital.
While private markets offer advantages of broader economic exposure, diversification and alpha generation, it is important to understand their differences from public markets.

Private markets require longer-term capital commitments. This necessitates careful selection of investment vehicles and precise allocation sizing. They are also less efficient than public markets. We stress the value of committing to managers who maintain consistent strategies and methodologies, and who have proven track records of outperforming public markets over time.
Our advice to clients has been, and remains to be, to spread their investments across a variety of alternative asset classes, managers, and funds. For years we have built alternative portfolios for ultra-high net worth clients who can tolerate illiquidity, often in the 20-30% range of overall holdings. High-net-worth investors might look at half of that (10-15%) as a potential target.
We advise clients in traditional closed-end funds to invest through consistent allocations across multiple strategies over time. Sizes should be similar each year. Being consistent and persistent can enhance diversification over “vintage years.”
The introduction of innovative open-end investment vehicles has simplified the investment process for investors across wealth brackets. Unlike traditional closed-end methods involving capital calls and drawdowns, these new vehicles require full capital upfront. Minimums in open-end funds can be significantly lower than traditional closed-end strategies, allowing high-net-worth investors to diversify across fund categories and managers as they grow their alternative exposure.
While they offer a degree of liquidity, individual investors must understand that these vehicles are not truly liquid. In favorable market conditions, when the funds are performing well and attracting more investments, open-end products will allow redemptions, usually on a quarterly basis. However, when a large number of investors wish to withdraw their investments simultaneously, it should be assumed that full liquidity will not be available and account redemption may not be possible.
Individuals should only make commitments in amounts they can afford to have tied up and treat these open-end funds as if they were conventional alternative investments – largely illiquid.
Many newer open-end funds do not yet have significant performance track records, not having been through full cycles, but their managers can have long track records in other structures and strategies. Investors can judge by their resources: how strong are their teams? What are their competitive advantages?
In private credit, it may be sourcing or top-quality credit selection. In other asset classes, such as private equity, top managers may be good at driving company growth organically, fixing problems, and helping companies create operational efficiencies.
Yet it can be hard for individuals to judge all of this. We suggest they work with financial advisors who have access to wealth platforms with proven alternatives managers. With the ability and resources to monitor multiple managers, they can help investors with diversification.
Over time, more opportunities for investors at different wealth levels could increase as retirement providers look to make alternatives available in plans that naturally have long time horizons. As companies stay private for longer, investors seek alpha generation, and the emphasis on portfolio diversification grows, opportunities and access to alternative investments should only continue to expand for individual investors. More

Traders work on the floor of the New York Stock Exchange during the morning trading on November 07, 2024 in New York City. 
Michael M. Santiago | Getty Images

Stocks @ Night is a daily newsletter delivered after hours, giving you a first look at tomorrow and last look at today. Sign up for free to receive it directly in your inbox.
Here’s what CNBC TV’s producers were watching as the Nasdaq Composite and S&P 500 extended their postelection rally, and what’s on the radar for the next session.

Citigroup’s Jane Fraser

On Friday, the bank’s CEO will be on with CNBC TV’s Sara Eisen in the 10 a.m. hour, Eastern.
Citigroup is up nearly 7% in four days. The stock is up 32% so far in 2024.
The stock hit a high on Wednesday but is already 2.8% from that high mark.
JPMorgan Chase, by the way, got a downgrade from Baird. Analyst David George thinks the stock will drop to $200, a roughly 15% decline from Thursday’s close. Year to date, JPM is up about 39%. The stock also hit a high Wednesday but dropped 4.7% from that level. 
“We find that expectations are quite high, with the stock trading at ~2.6x [tangible book value], 15% cap to assets, over 14x 2026 [earnings per share] estimates, and ~10x [pre-provision net revenue] — all close or at all-time highs,” Baird’s George wrote in his research report on JPM. “We know we are fighting the tape here, but believe it makes sense to sell the stock.” 

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Citigroup shares in 2024

IBM

Arvind Krishna, CEO of the tech giant, is also on with Sara Eisen in the 10 a.m. hour.
The stock is 10% from the mid-October high.
IBM is up about 31% so far in 2024.

Bonds and beyond

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The U.S. 10-year Treasury yield in 2024

NRG Energy

The company releases its quarterly report Friday before the bell.
The stock was up 4.3% on Thursday, hitting a new high.
NRG is now up 86% so far in 2024.

Big moves

The relative strength index, or RSI, is one metric traders and investors watch to track how fast and far a stock has moved. Anything above a 70 suggests a stock is overbought, while a result that’s below 30 could mean it’s oversold. These readings don’t necessarily guarantee that a big move is imminent.
After this recent run, 22 of the stocks in the Nasdaq 100 are in the overbought category.
Booking Holdings is at the top of the list. The stock is up 3.6% week to date and up 18% in a month.
Gilead Sciences is second. That stock Is up 9.4% in four days, and it’s gained about 16% in a month.
Five of the 30 stocks in the Dow Industrials are seen as overbought. Goldman Sachs is tops, followed by Visa. 
Goldman Sachs is up 12% in four days. Shares are up roughly 18% in a month.
Visa is up 5.2% in four days. Shares are up 11.7% in a month. More

The Federal Reserve cut its benchmark rate by a quarter point, or 25 basis points, at the end of its two-day meeting.
Economic anxiety was a prevailing mood heading into the U.S. presidential election. Lower borrowing costs may offer some relief to struggling Americans.

The Federal Reserve Building in Washington, D.C.
Joshua Roberts | Reuters

The Federal Reserve announced Thursday that it will lower its benchmark rate by a quarter point, or 25 basis points, less than two days after President-elect Donald Trump won the 2024 election.
Economic uncertainty was a prevailing mood heading into Election Day after a prolonged period of high inflation left many Americans struggling to afford the cost of living.

But recent economic data indicates that inflation has been falling back toward the Fed’s 2% target, which paved the way for the central bank to trim rates this fall. Thursday’s cut is the second, following a half-point reduction Sept. 18.
The federal funds rate sets overnight borrowing costs for banks but also influences consumer borrowing costs.
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Since the central bank last met, the personal consumption expenditures price index — the Fed’s preferred inflation gauge — showed a rise of just 2.1% year over year. 
Even though the central bank operates independently of the White House, Trump has been lobbying for the Fed to bring rates down.

For consumers struggling under the weight of high borrowing costs after a string of 11 rate increases between March 2022 and July 2023, this move comes as good news — although it may still be a while before lower rates noticeably affect household budgets.
“The Fed raised rates from the equivalent of the ground floor to the 53rd floor of a skyscraper, now they are on the 47th floor and another rate cut will take us to the 45th floor — the view is not a whole lot different,” said Greg McBride, chief financial analyst at Bankrate.com.
From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at how a Fed rate cut could begin to affect your finances in the months ahead.

Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — near an all-time high.
Annual percentage rates have already started to come down with the Fed’s first rate cut, but not by much.
“Still, these are sky-high rates,” said Matt Schulz, LendingTree’s credit analyst. “While they’ll almost certainly continue to fall in coming months, no one should expect dramatically reduced credit card bills anytime soon.”
Rather than wait for small APR adjustments in the months ahead, the best move for those with credit card debt is to shop around for a better rate, ask your issuer for a lower rate on your current card or snag a 0% balance transfer offer, he said.
“Another rate cut doesn’t change the fact that the best thing people can do to lower interest rates is to take matters into their own hands,” he said.
On the campaign trail, Trump proposed capping credit card interest rates at 10%, but that type of measure would also have to get through Congress and survive challenges from the banking industry.

Auto loans

Even though auto loans are fixed, higher vehicle prices and high borrowing costs have become “increasingly difficult to manage,” according to Jessica Caldwell, Edmunds’ head of insights.
“Amid this economic strain, it’s clear that President Trump’s promises of financial relief resonated with voters across the country,” she said.
The average rate on a five-year new car loan is now around 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, rate cuts from the Fed will take some of the edge off the rising cost of financing a car — likely bringing rates below 7% — helped in part by competition between lenders and more incentives in the market.
“As Americans seek a reprieve from the relentless pressures on their wallets, even a modest federal rate cut would be seen as a positive step in the right direction,” Caldwell said.
Trump has supported making the interest paid on car loans fully tax deductible, which would also have to go through Congress.

Mortgage rates

Housing affordability has been a major issue due in part to a sharp rise in mortgage rates since the pandemic.
Trump has said he’ll bring down mortgage rates — even though 15- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy. Trump’s victory even spurred a rise in the U.S. 10-year Treasury yield, sending mortgage rates higher.
Cuts in the Fed’s target interest rate could, however, provide some downward pressure.
“Continued rate cuts could begin to drive down mortgage rates, which have remained stubbornly high,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. As of the week ending Nov. 1, the average rate for a 30-year, fixed-rate mortgage is 6.81%, according to the Mortgage Bankers Association.
Mortgage rates are unlikely to fall significantly, given the current climate, said Jacob Channel, senior economist at LendingTree.
“As long as investors remain worried about what the future may bring, Treasury yields, and, by extension, mortgage rates are going to have a tough time falling and staying down,” Channel said.

Student loans

Student loan borrowers will get less relief from rate cuts. Federal student loan rates are fixed, so most borrowers won’t be immediately affected. With Trump’s win, efforts to forgive student debt are now likely off the table.
However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Treasury bill or other rates. As the Fed cuts interest rates, the rates on those private student loans will come down over a one- or three-month period, depending on the benchmark, according to higher education expert Mark Kantrowitz.
Still, a quarter-point cut will only reduce monthly payments on variable-rate loans by “about $1 to $1.25 a month for each $10,000 in debt,” Kantrowitz said.
Eventually, borrowers with existing variable-rate private student loans may be able to refinance into a less expensive fixed-rate loan, he said. But refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, such as deferments, forbearances, income-driven repayment, and loan forgiveness and discharge options.
Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.

Savings rates

While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.
As a result of Fed rate hikes, top-yielding online savings account rates have made significant moves and are still paying more than 5% — the most savers have been able to earn in nearly two decades — up from around 1% in 2022, according to Bankrate.
“Yes, interest earnings on savings accounts, money markets, and certificates of deposit will come down, but the most competitive yields still handily outpace inflation,” McBride said.
One-year CDs are now averaging 1.76% but top-yielding CD rates pay more than 4.5%, according to Bankrate, nearly as good as a high-yield savings account.
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