What's Happening?
JPMorgan BetaBuilders U.S. Equity ETF (BBUS) has reduced its expense ratio to 0.02%, making it cheaper than Vanguard's Total Stock Market ETF (VTI). BBUS achieves this by excluding small-cap stocks, focusing instead on the top 85% of the U.S. market by capitalization.
This strategy has led to a 76% return over five years, compared to VTI's 73%. However, the exclusion of small-caps, which have underperformed, raises questions about long-term growth potential. The fund's top holdings include major companies like Apple and Microsoft, with the top ten holdings accounting for 31% of the fund.
Why It's Important?
The reduction in fees by BBUS highlights the ongoing fee war among ETFs, which can significantly impact investor returns over time. By excluding small-caps, BBUS offers a different risk profile compared to VTI, which includes the entire market. This decision could appeal to investors who believe in the continued dominance of large-cap stocks. However, those who expect a resurgence in small-cap performance might find VTI more appealing. The choice between these ETFs could influence investment strategies, particularly in tax-advantaged accounts where switching costs are minimal.
What's Next?
Investors will need to consider their long-term market outlook and tax implications when deciding between BBUS and VTI. In tax-advantaged accounts, the lower fees of BBUS could be attractive, but in taxable accounts, the capital gains tax from switching could outweigh the fee savings. The performance of small-cap stocks in the coming years will also play a crucial role in determining the better investment choice.
