Funds, be they passive exchange traded funds (ETFs) or actively managed mutual funds, focusing on an individual investment factor typically carry higher fees than traditional, diversified equity funds.
That said, many passive single-factor funds, including ETFs, have fees that are only fractionally higher than the expenses found on S&P 500 or Russell 1000 tracking funds. Conversely, some actively managed growth and value strategies can carry noticeably higher fees.
Take the case of the T. Rowe Price Blue Chip Growth Fund Inc. (TRBCX). That actively managed product carries an annual fee of 0.70%, or $70 on a $10,000 investment. Since inception in 1993, TRCBX has produced average annual returns of 11.10%, according to issuer data. That is pretty good, but as Raltin data reveal, advisors can tap a number of low-fee, passive ETFs with high correlations to TRCBX.
One place to start is with the iShares Russell 1000 Growth ETF (IWF). The $41.80 billion IWF holds 545 stocks and tracks the Russell 1000 Growth Index. IWF charges 0.20% per year, or $20 on a $10,000 investment and has a correlation of 0.97 to the actively managed TRCBX.
For advisors that like to benchmark to the Russell 1000 and the related growth and value indexes, the Vanguard Russell 1000 ETF (VONG) is an even better bet because it is the Vanguard equivalent of IWF, but with an annual fee of just 0.12%. Due to the fact IWF and VONG both track the same index, their correlations to T. Rowe Price's TRCBX are the same, according to Raltin data.
For the advisor that is highly cost-conscious, the Schwab U.S. Large-Cap Growth ETF (SCHG) is another idea to consider. While this ETF does not track the Russell 1000 Growth Index (its bogey is the Dow Jones U.S. Large-Cap Growth Total Stock Market Index), SCHG is cheap and highly correlated to TRCBX. SCHG's five-year correlation to TRCBX is 0.96, according to Raltin data.
Additionally, SCHG charges just 0.04% per year, making it one of the cheapest factor ETFs in the U.S. Advisors that custody with Schwab can buy and sell SCHG commission-free to add to their clients' cost savings.
Learn more about the Raltin’s correlation methodology and how Raltin serves financial advisors.
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