Jack Lew isn’t your average baby boomer. There's that Treasury Secretary thing, for starters. What may be even more impressive than his resume, though, is his portfolio of low cost, index-tracking exchange-traded funds. Unlike the vast majority of baby boomers, who don’t use ETFs at all, Lew is saving himself thousands of dollars per year in fees and beating a solid two-thirds of active mutual fund managers.

According to an Executive Branch Disclosure form filed in May 2012 and first published in this Quartz article, the majority of Lew’s investments are tied to a TIAA-CREF retirement account. As well, he has sizable investments in five ETFs: SPDR S&P 500 (SPY), PowerShares Nasdaq 100 (QQQ), SPDR Mid Cap 400 (MDY), iShares Russell 2000 (IWM) and SPDR Dow Jones Industrial Average (DIA).

If this were the world of rock, these ETFs would be oldies-but-goodies Beatles songs from the 60’s -- classics, but still very relevant. Together they make up 15% of all ETF assets and have an average 10-year annualized return of 9.7%. That compares to an average 10-year annualized return of 8.7% for the approximately 3,000 U.S. focused equity mutual funds that have been around 10 years. Sorting those 3,000 funds by their 10-year returns shows that Lew’s ETFs are outperforming about two-thirds of them over that time period.

By using ETFs Lew keeps more of his money. These ETFs have an average expense ratio of 0.19%, compared to an average expense ratio of 1.31% for the 3,000 U.S. focused equity mutual funds. So the approximately $300,000 Lew has invested in the five ETFs costs him $570 per year in fees. If he were to put the same amount in five of those 3,000 mutual funds, he'd pay about $4,000 per year in fees. Multiply this by 20 years and that's $68,600 in cost savings. And this is before we consider any loads, capital gains or additional hidden fees like transaction costs and costs associated with high turnover.

Those layers of transparent and hidden costs embedded in mutual funds are why Lew’s mini-portfolio of robotic, plain vanilla ETFs is outpacing the majority of active mutual funds. It’s hardly that the people who manage those mutual funds are hapless. It’s just that fees are taken out of a mutual fund’s net asset value, and portfolio managers have to try and make up those costs in performance. In other words, the low fees on many ETFs allows them to outperform simply because they have less of a drag on performance from fees.

And unlike mutual funds which have a share class system equivalent to a regressive tax -- the less money you can invest the more you get charged -- ETFs don’t have share classes at all. So Aunt Edna investing $1,000 in an ETF pays the same fees as a Jack Lew or a Warren Buffett investing far more.

Only 10% of Lew's fellow baby boomers own at least one ETF, according to a Cogent Research report released in December and cited here. This compares with 20% for Gen X and 40% for Gen Y. So props to Jack Lew for keeping it simple and low cost with ETFs. In the end, he will have more money for himself when he retires -- which he'll most certainly need after a few years in the stress factory of high-level federal government.

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