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9 Top-Rated ETFs to Buy

Wayne Duggan

Top ETFs picks from Bank of America analysts.

Exchange traded funds have become one of the most popular ways for investors to diversify their portfolios without paying exorbitant commissions. ETFs provide investors with all of the benefits of a traditional mutual fund. But they also trade on the open market throughout the day, adding all the liquidity advantages of a stock. There are now thousands of ETFs providing investors diversified exposure to nearly any investment theme imaginable, from large cap U.S. stocks to gold mining. Bank of America analyst Mary Ann Bartels recently updated her list of top ETF picks. Here are nine top ETFs from different categories.

Invesco QQQ Trust (ticker: QQQ)

The QQQ is Bank of America's top overall pick for market cap weighted large cap equity ETFs. Despite a relatively high 0.2% expense ratio, Bartels says the QQQ fund is differentiated from its peer group because it is overweight the technology sector. In addition, about 82% of its holdings are Bank of America "buy" rated stocks compared to just 3% rated "underperform." Top holdings include Microsoft Corp. (MSFT), Apple (AAPL) and Amazon.com (AMZN). Bank of America has a favorable view of market cap weighted U.S. large-cap ETFs and a "more attractive" rating for the QQQ fund.

SPDR Dow Jones Industrial Average ETF Trust (DIA)

The DIA is designed to track the performance of the Dow Jones Industrial Average. Bartels says the fund's liquidity is among its most attractive characteristics given its three month average daily value traded is $812 million. She says 64% of the fund's exposure is to "buy" rated stocks compared to only 5% rated "underperform." Top holdings include Boeing Co. (BA), UnitedHealth Group (UNH) and Goldman Sachs Group (GS). Bank of America has a favorable view of non-market cap weighted U.S. large-cap ETFs and a "more attractive" rating for the DIA fund.

Vanguard Mid-Cap ETF (VO)

The VO is a fund structured to track the performance of the CRSP U.S. Mid Cap Index. One of the most appealing parts of the VO fund is its extremely low expense ratio of just 0.04%. In addition, about 43% of its holdings are rated "buy" by Bank of America. Top holdings include Twitter (TWTR), Newmont Goldcorp Corp. (NEM) and Fiserv (FISV). Bank of America has a neutral view of market cap-weighted U.S. mid cap ETFs and a "more attractive" rating for the VO fund.

John Hancock Multifactor Mid Cap ETF (JHMM)

The JHMM tracks the John Hancock Dimensional Mid Cap Index. Bank of America rates 36% of the fund's holdings as "buy" with only 14% rated "underperform." Bartels says the biggest risk to mid cap stocks at the moment is overall leverage, which is near all-time highs. Top fund holdings include L3Harris Technologies (LHX), United Airlines (UAL) and Xcel Energy (XEL). Bank of America has a neutral view of non-market cap weighted U.S. mid cap ETFs and a "more attractive" rating for the JHMM fund.

iShares U.S. Consumer Services ETF (IYC)

The IYC is a fund structured to invest at least 90% of its assets in U.S. consumer services stocks. Bartels says she is bullish on the U.S. consumer despite trade war concerns. While the latest round of tariffs will negatively impact earnings, she says there are plenty of offsets, such as low gas prices and lower mortgage rates. Top fund holdings include Amazon, Walt Disney Co. (DIS) and Home Depot (HD). Bank of America has a favorable view of the consumer services sector and a "more attractive" rating on the IYC fund.

Consumer Staples Select Sector SPDR Fund (XLP)

The XLP invests at least 95% of its assets in stocks comprising the Consumer Staples Select Sector Index. Bartels says second quarter consumer staples earnings were better than expected, and Amazon Prime Day helped boost July retail sales. In addition, staples are a hedge against market volatility given the sector has historically outperformed during bear markets. Top fund holdings include Procter & Gamble Co. (PG), Coca-Cola Co. (KO) and PepsiCo (PEP). Bank of America has a favorable view of the consumer staples sector and a "more attractive" rating on the XLP fund.

iShares U.S. Financials ETF (IYF)

The IYF is a fund structured to track the Dow Jones U.S. Financial Sector Index. The financial sector is the top U.S. stock sector based on Bank of America analyst tone, an advanced language processing tool used to compile an overall score of analyst enthusiasm. Sectors with bullish analyst tone have significantly outperformed since 2010. Top fund holdings include Berkshire Hathaway (BRK.A, BRK.B), JPMorgan Chase & Co. (JPM) and Visa (V). Bank of America has a favorable view of the financial sector and a "more attractive" rating on the IYF fund.

Vanguard Information Technology ETF (VGT)

The VGT is a fund designed to track the MSCI US Investable Market Information Technology Index. The tech sector has been a market leader for most of the past decade, and Bank of America remains bullish given the sector is exposed to several secular growth trends, including could services and robotics. The VGT fund is Bartel's top pick among eight information tech funds covered in her report. Top fund holdings include Apple, Microsoft and Visa. Bank of America has a favorable view of the technology sector and a "more attractive" rating on the VGT fund.

VanEck Vectors Biotech ETF (BBH)

The BBH tracks the Market Vectors US Listed Biotech 25 Index. The biotech industry has struggled in the past year as drug pricing scrutiny has ramped up ahead of the 2020 U.S. election. Legal crackdowns on opioid producers have also weighed on investor sentiment, but Bartels maintains her favorable view on the biotech industry and the BBH fund. Top fund holdings include Amgen (AMGN), Gilead Sciences (GILD) and Celgene Corp. (CELG). Bank of America has a favorable view of the biotech industry and a "more attractive" rating on the BBH fund.

Bank of America's top rated ETFs:

-- Invesco QQQ Trust (QQQ)

-- SPDR Dow Jones Industrial Average ETF Trust (DIA)

-- Vanguard Mid-Cap ETF (VO)

-- John Hancock Multifactor Mid Cap ETF (JHMM)

-- iShares U.S. Consumer Services ETF (IYC)

-- Consumer Staples Select Sector SPDR Fund (XLP)

-- iShares U.S. Financials ETF (IYF)

-- Vanguard Information Technology ETF (VGT)

-- VanEck Vectors Biotech ETF (BBH)



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