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Is Your Portfolio Fit? 6 ETFs for World Health Day Checkup

Sweta Killa
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Like a healthy life, it is necessary to protect the ETF portfolio from market gyration. Ahead of the World Health Day, let us look into the ingredients that can nourish your ETF portfolio from market volatility that is so rampant now. We also have highlighted an ETF from each category and their price performance over the past five years.

Blend

Blend funds consist of a mix of both growth and value stocks and are considered most appropriate in any type of market. This is because these funds harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices. At the same time, these tap buying opportunities at depressed stock prices hoping for capital appreciation when the stock finally reflects its true market price. In particular, Schwab U.S. Large-Cap ETF SCHX having a Zacks ETF Rank #2 (Buy) could be an interesting choice (read: 5 Ultra-Cheap Growth ETFs for a Large-Cap Play This Spring).

The ETF offers exposure to a broad basket of 765 U.S. stocks by tracking the Dow Jones U.S. Large-Cap Total Stock Market Index. It has a nice mix of growth, value and blend stocks with each holding less than 3.6% of the assets. But about one-fourth of the portfolio is dominated by information technology while financials, health care, consumer discretionary, and industrials round off the next four spots with a double-digit allocation each. SCHX has AUM of $11.9 billion and trades in average daily volume of around 821,000 shares. It charges 3 bps in fees and surged 88.6% in the last five years.

Quality

Quality ETFs are generally rich in value characteristics as these focus on stocks with high quality scores based on three fundamentals — high return on equity, stable earnings growth and low financial leverage. This approach seeks investments in safer stocks and reduces volatility when compared to plain vanilla funds. Academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term. More importantly, these stocks generally outperform in a crumbling market (read: Markets Bounce Back: Still It Is Time for Quality ETFs?).

While there are several quality ETFs available in the space, iShares Edge MSCI USA Quality Factor ETF QUAL seems to be the most popular. This fund provides exposure to stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth, and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index. Holding 125 securities in its basket, it has moderate concentrated across sectors, with each holding no more than 5.03% share. Information technology makes up about one-fourth of the portfolio while financials, consumer discretionary and healthcare round off the next three spots. The product has amassed $4.4 billion in its asset base and charges just 15 bps in annual fees from investors. Average trading volume is good at around 314,000 shares per day. The fund has returned nearly 65.3% since its inception in July 2013.

Expense Ratio

Expense ratio is important in determining the return of an ETF. A fund with low expense ratio significantly outperforms its more expensive counterparts while the other factors remain the same. And fortunately, expense ratio has drastically come down in recent years due to an intensifying price war. Schwab U.S. Broad Market ETF SCHB is one of the cheapest choices in the space with an expense ratio of 0.03% (see: all the Total U.S. Market ETFs here).

This fund provides broad exposure to the U.S. equity market by tracking the Dow Jones U.S. Broad Stock Market Index. Holding 2,288 securities, the fund is widely diversified across components with none accounting for more than 3.19% of assets. Here again, information technology is the top sector accounting for less than 22.8% while others sector make up for a nice mix. SCHB is one of the popular and liquid ETFs, with AUM of $11.5 billion and average daily volume of 727,000 shares. The product has delivered 87.8% returns over the five-year period and has a Zacks ETF Rank #2.

Higher Volume

An ETF should have enough liquidity in order to easily purchase and sell on the market. Volume, or the number of shares traded in a particular period, is definitely the most important consideration for determining the liquidity of a particular fund. A higher volume provides easy access to move in and out of the product, keeping the bid/ask spreads tight. Further, greater volume ensures easy creation and redemption of shares in the fund’s basket, which is a regular and vital mechanism.

While there are several ETFs that trade in higher volumes, PowerShares QQQ QQQ looks intriguing. This ETF provides exposure to 103 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq-100 Index. Information technology accounts for 61% of the assets, while consumer discretionary takes a 22.2% share. QQQ is one of the largest and the most popular ETFs in the large-cap space with AUM of $58.8 billion and average daily volume of around 39.1 million shares. It charges investors 20 bps in annual fees and jumped 147% over the past five years. The fund has a Zacks ETF Rank #2.

Diversification

A diversified portfolio in the equity world refers to investing in stocks of different companies, securities and industries in order to minimize overall risk and achieve optimal risk-adjusted returns. While there are several ETFs that offer diversification benefits, Guggenheim S&P 500 Equal Weight ETF RSP could be an interesting choice, as it offers almost equal allocation in the stocks of the S&P 500 index and does not allocate a big chunk to any sector.

The fund tracks the S&P Equal Weight Index, putting roughly 0.2% in each stock. Consumer discretionary, industrials, information technology, financials and healthcare are the top five sectors accounting for double-digit exposure each. The fund has amassed nearly $14.5 billion in its asset base while sees volume of more than 648,000 shares a day on average. It charges 20 bps in fees per year from investors and gained 83.4% over the past five years (read: Why These Sector ETFs Are Winning Picks Now).

Dividend

Dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. Dividend-focused products offer both safety in the form of payouts and stability in the form of mature companies that are less immune to the large swings in stock prices. While several choices are available in the dividend space, Vanguard Dividend Appreciation ETF VIG looks attractive (read: 4 High Dividend ETFs & Stocks Yielding 5% or More).

This is the largest and most-popular ETF in the dividend space with AUM of $27.2 billion and average daily volume of about 760,000 shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high quality stocks that have a record of growing dividend year over year. It holds 177 securities in the basket with none accounting for more than 5.2% share. However, it has a definite tilt toward industrials at 34% while consumer services, consumer goods and healthcare round off the next three spots. The fund charges 8 bps in annual fees and has a Zacks ETF Rank #2. It has returned about 72.3% over the past five years.

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