Given the sheer expanse of the U.S. exchange-traded funds (ETFs) market, which is home to over 2,300 products, what constitutes the best ETF can vary from investor to investor.
For some investors, the best ETFs are the ones with the lowest fees while other investors focus on the products with the juiciest dividend yields. Some investors think the ideal funds are the ones with the best past performance records and other ETF users think the best ETFs come from the issuers with the highest brand recognition.
Indeed, a recent survey of professional investors by Brown Brothers Harriman indicates ETF users do prioritize costs and past performance when evaluating funds. Still, there is no one-size-fits-all approach to picking the best ETFs.
Here are some of the best ETFs for a variety of investors.
SPDR Portfolio Total Stock Market ETF (SPTM)
Expense Ratio: 0.03% per year, or $3 on a $10,000 investment.
The SPDR Portfolio Total Stock Market ETF (NYSEARCA:SPTM) is one of the best ETFs for investors looking to accomplish multiple objectives. Home to over 2,600 stocks, SPTM gives investors a deep bench for accessing the U.S. equity market.
Second, with an annual fee of just 0.03%, the equivalent of $3 on a $10,000 investment, SPTM is one of the cheapest ETFs in the U.S. Just a handful of funds have annual fees of 0.03% and SPTM is one of them.
Bottom line: SPTM is one of the best ETFs for novice or cost-conscious investors.
iShares Edge MSCI Min Vol USA ETF (USMV)
Expense Ratio: 0.15%
The $22 billion USMV “seeks to track the investment results of an index composed of U.S. equities that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market,” according to iShares.
USMV holds over 200 stocks and nearly 30% of those holdings hail from the technology and financial services sectors. Financial services and consumer staples combine for almost a quarter of USMV’s roster.
WisdomTree U.S. MidCap Dividend Fund (DON)
Expense Ratio: 0.38%
There are multiple reasons why the WisdomTree U.S. MidCap Dividend Fund (NYSEARCA:DON) is one of the best ETFs for any investors. First, extensive data and studies confirm that mid-cap stocks frequently outperform their large-cap peers while sporting less volatility than small-caps.
Second, specific to DON’s status as one of the best ETFs, data confirm this fund’s dominance in the mid-cap arena. The $3.51 DON turns 13 years old in June and in its more than 12 years on the market, the WisdomTree products has consistently crushed rival actively managed mid-cap funds as well as passive equivalents.
“Following another strong year relative to its benchmark, DON is in the top quartile of its Morningstar Mid-Cap Value peer group on all time frames. This includes the latest 5- and 10-year periods in which DON is in the first percentile of all mid-cap value funds,” according to WisdomTree.
Invesco S&P 500 Equal Weight ETF (RSP)
Expense Ratio: 0.2%
The Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) has long been one of the best ETFs for investors looking for an alternative to cap-weighted S&P 500 funds. As its name implies, RSP is an equal-weight fund, meaning the S&P 500’s smaller components are just as important to this fund’s price action as are the index’s large- and mega-cap names.
Knowing that over long holding periods, small stocks outperform large caps, RSP is one of the best ETFs for investors seeking long-term broad market exposure. Data confirm as much. From RSP’s inception in April 2013 through the end of January 2019, RSP beat the cap-weighted S&P 500 by nearly 200 basis points.
First Trust Dow Jones Internet Index Fund (FDN)
Expense Ratio: 0.53%
The First Trust Dow Jones Internet Index Fund (NYSEARCA:FDN) is not just one of the best Internet ETFs, it is one of the best ETFs in the sector/industry space as well. Over the past decade, FDN has handily outperformed the S&P 500 and the S&P 1500 Information Technology Composite Index. FDN was also one of the best ETFs in the U.S. during the most recent bull market.
“FDN’s primary rival is the PowerShares NASDAQ Internet Portfolio (NASDAQ:PNQI). PNQI tracks the largest and most liquid U.S.-listed companies engaged in internet-related businesses and employs a modified market cap-weighted indexing methodology based on the market cap ranking of the underling index securities,” according to ETF Trends.
Vanguard Mega Cap Value ETF (MGV)
Expense Ratio: 0.07%
The Vanguard Mega Cap Value ETF (NYSEARCA:MGV) is one of the best ETFs for investors seeking basic exposure to domestic mega-cap stocks with a value bias. MGV’s value tilt is notable because the value factor has historically rewarded long-term investors, indicating that this Vanguard fund is a solid idea for young investors, too.
MGV follows the CRSP Mega Cap Value Index. Over the past three years, MGV has been one of the best ETFs targeting large-cap value names — outperforming the Russell 1000 Value Index by 600 basis points over that period.
MGV holds 150 stocks and its earnings multiples indicate the fund trades at a discount relative to broader market benchmarks, such as the S&P 500. Financial services and healthcare names combine for 42.6% of MGV’s weight.
VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)
Expense Ratio: 0.35%
Some of the best ETFs are fixed-income funds and for the adventurous bond investor, the VanEck Vectors Fallen Angel High Yield Bond ETF (NYSEARCA:ANGL) is a name to remember. ANGL is the dominant name among fallen angel funds.
Fallen angels are corporate bonds that are originally issued with investment-grade credit ratings that are later downgraded to junk status. To the untrained eye, it may appear that fallen angels are like any other junk bond, but there is more to the story.
“Fallen angels, high yield bonds originally issued as investment grade corporate bonds, have had historically higher average credit quality than the broad high yield bond universe,” according to VanEck. “Fallen angels have outperformed the broad high yield bond market in 11 of the last 15 calendar years.”
ANGL has a 30-day SEC yield of 6.3%, a 12-month yield of 5.6% and an effective duration of 5.85 years.
Vanguard High Dividend Yield ETF (VYM)
Expense Ratio: 0.08%
The Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is one of the largest U.S. dividend ETFs and a popular choice for yield-hungry investors. While VYM is positioned as a high-dividend fund, its dividend yield of 31.6% is not scary and implies some room for payout growth.
“High-yielding stocks usually pay out an above-average share of their earnings in the form of dividends, leaving a smaller buffer to preserve dividend payments should earnings fall,” said Morningstar. “Although the fund targets high-yielding companies, its market-cap-weighting approach helps it to effectively diversify the risk of solely focusing on yield. In fact, its portfolio represents nearly 38% of the holdings in the Russell 3000 Index. And while the fund has meaningful exposure to a few of its largest holdings, they are not among its riskiest positions.”
VYM holds nearly 400 stocks, most of which are large- and mega-cap names. Five sectors have double-digit weights in the fund.
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
Expense Ratio: 0.6%
One of the best ETFs many investors have yet to hear of, the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (CBOE:SRVR), offers a unique, potentially more rewarding approach to real estate investing.
Long-term investors are often attracted to real estate funds because of the sector’s below-average volatility and above-average volatility. Those are fine traits and SRVR sacrifices neither, but what makes this one of the best ETFs is its compelling opportunity set, one that is not found with traditional real estate ETFs.
SRVR has a dividend yield of 3.67%, which is impressive regardless of asset class. Additionally, the fund has shown the ability to outperform traditional real estate ETFs as well as technology funds. Communication needs of the future, including 5G, server farms for cloud computing and more, are among the compelling fundamental factors in SRVR’s favor.
Cambria Tail Risk ETF (TAIL)
Expense Ratio: 0.59%
The Cambria Tail Risk ETF (CBOE:TAIL), an actively managed fund, is designed to mitigate risk when markets turn lower and uses put options to accomplish that objective.
TAIL strategy offers the potential advantage of buying more puts when volatility is low and fewer puts when volatility is high,” according to Cambria.
Given TAIL’s design, it is likely this fund will produce negative returns when stocks are trending higher. So what makes TAIL one of the best ETFs? Put simply, it does its job. Just look at how TAIL performed when broader markets swooned in the fourth quarter of 2018.
As of this writing, Todd Shriber did not own any of the aforementioned securities.>
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