What are the best commission free ETFs in DEGIRO?

As I mentioned in my overview of DEGIRO, the broker has a long list of commission free ETFs. When you stumble into that list for the first time you may wonder: which ones should I be buying? Which DEGIRO commission free ETFs are the best?

How do commission free ETFs work?

Your first trade of the month on any such ETF is free of charge. Your second trade for that ETF will be free if it has the same direction as the first one (e.g. buy or sell) and the value of the trade is higher than 1000 EUR. The remaining trades have commissions.

Your trade needs to happen on the stock exchange specified on the “free ETFs” list in order for the commission to be waived. Thus, that you may end up having to pay yearly connectivity fees (maximum 2.5 EUR) per exchange per calendar year in order to trade in exchanges other than your home market.

Example 1

  • You buy 10 shares (50 EUR each) of the iShares MSCI World Accumulating ETF through the Euronext Amsterdam exchange at the beginning of the month. You spend 500 EUR and pay no commission fees because it is your first trade of the month for that ETF and it was bought in the appropriate exchange.
  • You buy an additional 5 shares (50 EUR each) of the iShares MSCI World Accumulating ETF through the Euronext Amsterdam Stock Exchange at the end of the month. You spend 250 EUR and pay 2.095 EUR in fees because it is the second trade of the month for that ETF and your order was less than 1000 EUR.

Example 2

  • You buy 5 shares (100 EUR each) of the Vanguard FTSE All-World ETF through the XETRA exchange. You spend 500 EUR and pay commission fees because this ETF is only commission free when bought through the Euronext Amsterdam exchange.

Example 3

  • You buy 10 shares (25 EUR each) of the iShares S&P 500 ETF through the Euronext Amsterdam exchange at the beginning of the month. You spend 250 EUR and pay no commission fees because it is your first trade of the month for that ETF and it was bought in the appropriate exchange.
  • You buy an additional 100 shares (25 EUR each) of the iShares S&P 500 ETF through the Euronext Amsterdam exchange at the end of the month. You spend 2500 EUR and pay no commission fees because it is your second trade of the month for that ETF, your order was more than 1000 EUR and it was in the same direction. The following trades for this ETF will have commission fees.

Which commission free ETFs are the best?

As of (July 1st 2019) there are over 200 commission free ETFs in DEGIRO. It is easy to look at that list and feel overwhelmed. So, which ETFs from that list are the best?

The truth is: there is no such thing as the absolute best ETF. An ETF is only a tool to achieve a goal and you need to start from your goal. That is: Before you choose an ETF, you choose an investment strategy which determines the types of assets you want to invest in (e.g. companies from a specific region or bonds from a certain country). The best ETF is the ETF that most adequately implements the strategy you need.

Therefore, below I will go over different investment strategies and which ETFs from DEGIRO’s free ETF list best implement them.

Global Equities

This investment strategy is about being exposed to the stocks of companies of the whole world weighted by free float market capitalization. It is my preferred strategy because you get exposed to the whole world according to each country’s appropriate proportion. With this strategy you don’t have to guess what is the adequate allocation to each country, that is done for you by the index.

The following commission free ETFs best implement this strategy:

Technically the MSCI World index only tracks stocks of companies from the developed world instead of the whole world. I’ve included it here because the performance of developed world index funds is very similar to the performance of whole world index funds.

These ETFs were excluded because they are too expensive (high TER) and cheaper comparable alternatives exist:

I’ve also excluded all funds that have synthetic replication or were not domiciled in Ireland.

US Equities

This investment strategy is about being exposed to the US stock market. Some investors advocate for this strategy because:

  • the US is the biggest financial market in the world, with the biggest returns to date.
  • ETFs tracking US stocks are often the cheapest
  • most US companies are multinational so you get some international exposure
  • Most of the personal finance literature is US focused and advocates for this strategy.

The following commission free ETFs best implement this strategy:

I’ve excluded all funds that have synthetic replication or were not domiciled in Ireland.

Low-risk Bonds

This investment strategy is about having a safe asset in your portfolio. Since this asset has low risk, you also expect to have low returns. Ideally you would be investing in high quality bonds (i.e. higher than AA) government bonds denominated in your currency.

The commission free ETFs list does not have any bond funds that fit this criteria which I would recommend.

Even though the list has a few funds investing in Eurozone government bonds (useful for EUR investors mostly). The current yields from those bonds are not good enough to justify buying them. You can have better yields with low risk by keeping your money in a savings account.

Summary

The DEGIRO commission free ETFs list has a long list of available ETFs. Nevertheless, what matters is which ETFs invest in assets that fit your investment goals.
There are a few great ETFs when it comes to investing in Global or US Equities.
You should not restrict your search to DEGIRO’s commission free ETFs. You may find better alternative ETFs that have a lower ETF, are bigger in size, fit your preferred dividend distribution policy, match your investment strategy, etc.