Are you wondering what the best ETFs to buy are given all the market volatility we’ve been facing in recent weeks?
The tech sector has been hit especially hard: The Technology Select Sector Index is down 11.5% over the past three months — almost double the loss of the S&P 500. But most of the largest companies — and biggest growth companies — in the market are tech stocks. So what should investors do?
They should try to buy the whole market. According to the Index Industry Association, the trade group for the index industry, there were 3.7 million published indices globally as of June 30, 2018, 13% higher than a year earlier. Many of those indices are tracked by ETFs. They cover virtually every subject imaginable.
It’s both incredibly easy and difficult for regular investors to capture vast swaths of the global economy. Easy because with the click of a button you can own some of China’s biggest companies; difficult because the choices available have become far too great for anyone with a day job.
Here are the best ETFs to buy for exposure to tech while avoiding some, if not all, of the bloodbath.
SPDR Portfolio Total Stock Market ETF (SPTM)
If you’re an Apple (NASDAQ:AAPL) fan, the SPDR Portfolio Total Stock Market ETF (NYSEARCA:SPTM) is the best ETF for you. SPTM has the iPhone maker as its number one holding with a weighting of 3.25% as of November 26.
The ETF, which charges just 0.03%, tracks the SSGA Total Stock Market Index, which captures 98% of the investable U.S. equity market.
There are currently 2,659 holdings in SPTM. The weighted average market cap of those holdings is $171.4 billion.
As for tech stocks — if you include the newly created communication services sector — they account for 27.9% of the ETF’s overall portfolio. If you exclude communication services, which also consists of some media stocks, the weighting is a more palatable 20.9%.
A popular ETF with $2.5 billion in net assets, it was launched on October 4, 2000. Since inception, SPTM has delivered an annualized return of 5.92% through October 31.
Vanguard S&P 500 ETF (VOO)
If Warren Buffett were recommending an ETF to buy, it would surely be the Vanguard S&P 500 ETF (NYSEARCA:VOO), the ETF version of the mutual fund he often suggests when asked what regular investors should buy.
VOO is Vanguard’s version of the S&P 500, probably the world’s best-known stock index. Charging just 0.04% annually, VOO gives you 509 of America’s finest companies including Apple. The top ten holdings account for 23% of the ETFs $99.4 billion in total assets.
Like SPTM, VOO has a reasonably large exposure to tech, accounting for 30.8% overall if you include communication services.
But VOO’s performed significantly better than SPTM — up 14.1% on an annualized basis through October 31 — because it didn’t get its start until September 7, 2010, almost ten full years later, when equities were on the rise.
You can’t go wrong listening to Warren Buffett; VOO is one of the best ETFs to buy now.
iShares Russell Top 200 Growth ETF (IWY)
When you think about tech investing, growth stocks generally come to mind.
The iShares Russell Top 200 Growth ETF (NYSEARCA:IWY) is one of the best ETFs to buy for growth. As the name implies, IWY has a significant portion of its $1.2 billion in net assets invested in tech and communication services stocks.
So, if you’re trying to avoid tech stocks, IWY probably isn’t the best ETF to own.
However, if you’re willing to look past the 32.6% weighting in technology and 12.2% weighting in communication services, it’s a decent investment.
Well, even though IWY holds a large number of tech stocks, some of those tech names, especially in the top ten holdings, use technology to complement their businesses rather than to make them.
Mastercard (NYSE:MA) and Visa (NYSE:V) are two prime examples of companies that use technology to provide financial services. Most people would view them more as consumer brands and less as technology innovators.
Don’t tell the CEOs of Mastercard and Visa, but you get where I’m coming from.
Oh, and it only charges 0.20% for exposure to stocks that are expected to grow earnings faster than large caps as a whole.
Invesco S&P 500 Top 50 ETF (XLG)
Naturally, XLG also has a significant component of tech stocks, but they’re huge companies with an average market cap of $391 billion; they aren’t going out of business unless the world as we know it ends.
Together, tech and communication services stocks, account for 43.7% of the ETF’s $762 million in net assets. The top ten holdings have a 42.1% weighting with Microsoft (NASDAQ:MSFT) knocking Apple — it’s the second-largest holding — out of the top spot for a change.
As of September 30, an investment of $10,000 a decade ago in XLG, is today worth $29,288 after its annual fee of 0.20%. Clearly this is one of the best ETFs around.
Fidelity NASDAQ Composite Index (ONEQ)
You might not have noticed, but I’ve limited my best ETF picks to one per provider so that you get a diversified group of products and not just Vanguard or iShares’ best options.
The Fidelity NASDAQ Composite Index Tracking Stock (NASDAQ:ONEQ) has been around for more than 15 years. It’s intended to track the performance of the Nasdaq Composite Index although the ETF has just 999 holdings compared to the more than 3,000 stocks trading on Nasdaq.
The ETFs top ten holdings account for 45.4% of the portfolio.
So, why did I pick ONEQ when technology and communication services account for 45.8% of its $1.8 billion in net assets?
One word: Performance.
Over the past ten years, ONEQ achieved an annual total return of 16.7% through October 31, easily one of the best-performing ETFs of the past decade.
Long term, the 0.21% expense ratio is worth it.
WisdomTree US Total Earnings ETF (EXT)
The WisdomTree US Total Earnings ETF (NYSEARCA:EXT) has just $88.6 million in net assets making it the smallest of the ETFs on my list. That said, EXT has some interesting characteristics worth considering.
For example, EXT tracks the WisdomTree U.S. Earnings Index, which uses fundamental earnings to weight the holdings. Companies included in the index have generated positive earnings over four consecutive quarters at the time of the index’s annual rebalancing in December.
The weighting of each stock is based on the sum of the four consecutive quarters of earnings divided by the total earnings of the entire portfolio. The higher they are, the higher the weighting.
No individual holding can represent more than 20% of the entire index. No sector — and this one’s important vis-à-vis technology — will be weighted at more than 25%.
As of September 30, technology accounted for 23.3% of the ETF’s portfolio. Although tech is the sector with the highest weighting, it’s still much lower than some of the other ETFs mentioned in this article.
Charging 0.28%, I think it’s a reasonable price to pay for one of the best ETFs to buy now: a diversified portfolio of profitable U.S. stocks with limited tech exposure.
JPMorgan U.S. Quality Factor ETF (JQUA)
Although JPMorgan is the second-smallest of the ETF providers in this article with $17.7 billion in assets under management as of November 26, it’s got some interesting ETFs.
JPMorgan U.S. Quality Factor ETF (NYSEARCA:JQUA) is one of them. Who wouldn’t want “quality” to be a part of an ETF investment strategy?
The day someone launches a fund with the word “crappy” in the title is the day we know there are no more good ETF investing ideas.
Seriously, JQUA tracks the JP Morgan US Quality Factor Index, that takes the sector weightings of the Russell 1000 — the largest 1,000 investable U.S. companies — and then quantifies each of the companies in the Russell 1000 based on profitability, quality of earnings, and solvency.
Currently, JQUA has $36.7 million in net assets, spread among 230 holdings. Technology stocks account for just 20.0% of the ETF portfolio, making it one of the best ETFs to buy a large selection of stocks while limiting your tech exposure.
The top ten holdings account for just 18.4% of the portfolio and Apple isn’t anywhere near the top. It’s in 8th spot (hey that’s low for AAPL!) behind Cisco (NASDAQ:CSCO) and ahead of Home Depot (NYSE:HD) and Merck (NYSE:MRK).
More importantly, it charges just 0.12% annually, a reasonable price for a reasonable ETF.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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