Compare Two ETFs
Tracking difference = ETF annual return minus benchmark return (negative = ETF lags index). Use the fund's annual report or ETF.com for these values. Leave tracking difference blank to use expense ratio as the cost proxy.
ETF A
ETF B
Results
How the Calculation Works
All-In Cost Components
- Annual carry cost: If tracking difference is provided, it is used as the annual cost (it captures expense ratio, securities lending revenue, and index friction in one number). If not provided, the expense ratio is used. A negative tracking difference means the ETF outperforms the index net of all costs.
- Transaction cost: The bid-ask spread (in basis points) paid as a round-trip cost when buying and selling. One basis point = 0.01%. A 2 bp spread costs 0.02% per round trip (half on entry, half on exit). This cost is incurred once, not annually.
- Total cost over holding period: (Transaction cost) + (Annual carry cost × Years). Expressed both as a percentage of the investment and in dollar terms.
Breakeven Holding Period
The breakeven holding period is where the cumulative annual cost advantage of the cheaper fund overcomes its wider initial transaction cost. If ETF A has a 2 bp spread but 0.05% lower annual carry cost, and ETF B has a 1 bp spread but 0.05% higher annual cost: ETF A incurs 1 bp more transaction cost upfront, but saves 5 bps annually. Breakeven = 1 bp ÷ 5 bps/year = 0.2 years ≈ 2.4 months.
Limitation
This tool uses static inputs. Real tracking difference varies year to year. Transaction costs depend on actual executed spread (not mid-point) and market conditions at the time of trade. This calculation assumes one purchase and one sale at exactly the stated spread. Frequent rebalancing traders should multiply the transaction cost by number of round trips per year.