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The 10 Best ETFs of January 2024
Fund Name | Expense Ratio |
---|---|
Vanguard Total International Stock ETF (VXUS) | 0.07% |
Schwab U.S. Dividend Equity ETF (SCHD) | 0.06% |
Invesco S&P 500 GARP ETF (SPGP) | 0.34% |
Schwab Fundamental International Large Company Index ETF (FNDF) | 0.25% |
Vanguard Mid Cap Growth ETF (VOT) | 0.07% |
Vanguard Intermediate-Term Corporate Bond ETF (VCIT) | 0.04% |
iShares Floating Rate Bond ETF (FLOT) | 0.15% |
iShares National Muni Bond ETF (MUB) | 0.07% |
Avantis U.S. Small Cap Value ETF (AVUV) | 0.25% |
Columbia U.S. ESG Equity Income ETF (ESGS) | 0.35% |
Vanguard Total International Stock ETF (VXUS)
Expense Ratio
0.07%
Dividend Yield
3.28%
10-Year Avg. Ann. Return
4.13%
Why We Picked It
The Vanguard Total International Stock ETF has a powerful factor in its favor. Currently, key foreign stock markets are more attractively valued than that of the U.S., based on comparisons to the widely followed S&P 500 Index. Based on the reversion to the mean principal, international stocks are due for a rebound.
With nearly 8,000 holdings, VXUS provides expansive exposure to international stocks. Still, bear in mind that many component stocks do business in the U.S., including Taiwan Semiconductor Manufacturing (TSM) and Nestle (NSRGY).
About three-quarters of VXUS is at work in stocks based in developed markets. Roughly 70% of holdings are large-cap stocks. The balance consists of mid- and small-cap stocks.
VXUS holdings reflect the wisdom of the investment world, due to the fund’s market-capitalization weighting approach. This is truly a set-it-and-forget-it international-stock fund, designed as core portfolio holding.
Schwab U.S. Dividend Equity ETF (SCHD)
Expense Ratio
0.06%
Dividend Yield
3.47%
10-Year Avg. Ann. Return
11.22%
0.06%
3.47%
11.22%
Why We Picked It
Investors seeking strong dividends, high-quality stocks and capital appreciation will find a lot to love in the Schwab U.S. Dividend Equity ETF. The low expense ratio is alluring. SCHD aims for a portfolio populated by companies with stronger fundamental metrics than their peers.
SCHD’s roughly 100 holdings skew toward large-cap value stocks. Many are reliable dividend payers. Unlike the tech-heavy S&P 500, industrials, health care, financials and consumer staples make up the bulk of SCHD holdings.
SCHD outperformed its Morningstar large-cap value fund category during the previous five- and 10-year periods. Investors seeking a passive index fund that’s relatively generous with dividends and which often outpaces its peers should check out SCHD.
Invesco S&P 500 GARP ETF (SPGP)
Expense Ratio
0.34%
Dividend Yield
1.24%
10-Year Avg. Ann. Return
14.50%
0.34%
1.24%
14.50%
Why We Picked It
The Invesco S&P 500 GARP ETF owns stocks primed for growth at a reasonable price. The fund’s roughly 70 holdings are chosen from among companies in the S&P 500 with the highest growth scores, along with what Invesco calls high quality and strong value composite scores.
Well diversified, SPGP’s top 10 holdings comprise roughly 20% of the fund. Healthcare is SPGP’s largest sector. Technology is close behind, followed by financials and industrials.
SPGP has larger weightings of mid- and small-cap stocks than the S&P 500 does. That’s likely a key reason that SPGP is more volatile than the large-cap bogey. Still, if you want a cautious fund that has handily outperformed its Morningstar category over the past three, five and 10 years, kick the tires on SPGP.
Schwab Fundamental International Large Company Index ETF (FNDF)
Expense Ratio
0.25%
Dividend Yield
3.44%
10-Year Avg. Ann. Return
4.91%
0.25%
3.44%
4.91%
Why We Picked It
International stocks should be a part of any diversified investment portfolio. Schwab Fundamental International Large Company Index ETF focuses on large- and mid-sized companies from developed markets.
This passively managed fund offers a dividend yield that’s higher than the market average, represented by the S&P 500 Index. FNDF leans towards large-cap value and core stocks. The fund has outperformed its Morningstar category over the past one, three, five and 10 years.
Vanguard Mid Cap Growth ETF (VOT)
Expense Ratio
0.07%
Dividend Yield
0.72%
10-Year Avg. Ann. Return
10.05%
0.07%
0.72%
10.05%
Why We Picked It
Growth funds own companies that are delivering higher-than-average growth rates in key metrics like sales and cash flow. The Vanguard Mid Cap Growth ETF posts a five-year earnings growth rate around 29%. That’s about four percentage points higher than VOT’s Morningstar mid-cap growth category’s average.
VOT’s top sector weightings are in technology, healthcare stocks and industrials. The fund has outperformed its Morningstar category over the past one, three, five and 10 years. VOT provides low-cost access to faster growing mid-cap companies, which should be appealing to aggressive growth investors.
Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
Expense Ratio
0.04%
Dividend Yield
3.74%
10-Year Avg. Ann. Return
3.06%
0.04%
3.74%
3.06%
Why We Picked It
More and more, the Vanguard Intermediate-Term Corporate Bond ETF looks like a natural fit for any diversified portfolio. After all, diversification calls for owning both stocks and bonds in any long-term portfolio. Bonds add stability and are typically less volatile than stock investments. And, increasingly, they’re also a decent source of yield.
VCIT owns roughly 2,100 corporate bonds with investment-grade credit ratings. Its bonds mature in five to 10 years. The fund’s average effective duration is about six years. Duration shows the expected price decline of a bond or bond fund for each 1% rise in interest rates. In VCIT’s case, shareholders can expect the security to fall in value by about 6% for each 1% annual rise in interest rates.
Ninety-five percent of the bonds land in the A and BBB rating categories, which are investment grade. Over the next several years, it’s likely that interest rates will plateau or decline, lifting bond prices.
iShares Floating Rate Bond ETF (FLOT)
Expense Ratio
0.15%
Dividend Yield
5.66%
10-Year Avg. Ann. Return
1.80%
0.15%
5.66%
1.80%
Why We Picked It
The iShares Floating Rate Bond ETF is a floating rate fixed income fund. It holds more than 300 shorter-term investment-grade bonds with maturities between one and five years.
FLOT’s average effective duration is barely a week. The shorter term and floating rate help the fund maintain a relatively steady value. The monthly income is handy for investors seeking to profit from current higher yields and regular cash flow payments.
Bonds owned by FLOT sport solid credit ratings. with the majority holding an A, AA or AAA. Roughly one-fifth of FLOT holdings are government bonds. About another 75% are corporate bonds. Investors seeking higher yields than what they can get from a savings account and who need near-term cash access should consider FLOT as an alternative to certificates of deposit.
iShares National Muni Bond ETF (MUB)
Expense Ratio
0.07%
Dividend Yield
2.65%
10-Year Avg. Ann. Return
2.77%
0.07%
2.65%
2.77%
Why We Picked It
The iShares family is known for low-fee, well-crafted ETFs. The iShares National Muni Bond ETF is no exception. MUB grants wealthier investors a muni bond fund with federally tax-exempt income for a low cost.
This national muni-bond fund owns well over 5,000 investment grade municipal bonds from around the U.S. MUB’s tax-free yield is equivalent to taxable yield of 3.461% for a married joint filing couple in the 24% bracket. It has an effective duration of about six years.
Roughly 20% of MUB’s bonds are from New York. Another 20% are from California. That suggests that residents of those states might also receive a modest tax break on their state tax payments as well. If you’re looking for federally tax exempt monthly cash flow, then MUB serves it up on the cheap.
Avantis U.S. Small Cap Value ETF (AVUV)
Expense Ratio
0.25%
Dividend Yield
1.66%
Avg. Ann. Return Since Inception (Sept. 2019)
16.55%
0.25%
1.66%
16.55%
Why We Picked It
Nobel prize winner Eugene Fama and his collaborator Kenneth French’s research found that small-cap and value stocksoutperform the market over long periods of time. The trouble is, large caps and growth stocks also outperform for extended periods.
If you think the market is tilting in favor of small caps and value stocks, Avantis U.S. Small Cap Value ETF may be for you. It focuses on U.S. small caps with high profitability ratios and low valuations. AVUV owns more than 700 stocks. AVUV holdings have a higher profits-per-book-value than its benchmark, the Russell 2000 Value Index.
The well-diversified fund puts less than 10% of its shareholders’ money to work in its top-10 holdings. AVUV’s largest sector weightings are in financials, consumer cyclicals, industrials and energy. Those four sectors account for roughly 80% of fund assets. That concentration adds risk to the portfolio. Yet AVUV’s 3 year average annual performance is roughly half again bigger than its Morningstar small-cap value category’s.
Columbia U.S. ESG Equity Income ETF (ESGS)
Expense Ratio
0.35%
Dividend Yield
2.49%
Avg. Ann. Return Since Inception (June 2016)
11.77%
0.35%
2.49%
11.77%
Why We Picked It
Columbia Threadneedle screens for U.S. companies at the forefront of their respective industries in environmental, social and governance factors, and which appear poised for strong long-term growth. The fund seeks out firms from the ESG universe with financial stability, consistent cash flow and the potential for continuing dividend payments.
ESGS is discerning—it owns only about 100 stocks. The holdings are mainly large caps, and the portfolio leans toward value and blend stocks. Concentrated, the top-10 stocks are roughly 40% of ESGS assets.
A relatively high dividend yield makes ESGS a solid choice for ESG inventors seeking both cash flow and price appreciation. Be aware that ESGS also has a high turnover rate, well over 100% annually.
*All data is sourced from Morningstar Direct, current as of January 3, 2023 unless noted otherwise.
Methodology
Forbes Advisor delved into several sources to craft this list of the best ETFs. Starting with a universe of thousands of ETFs, we screened equity funds in search of those in the top 20% of three-year returns. In addition, we looked for ETFs whose expense ratios are among the lowest 40%. Those steps cut our list of candidates to a manageable 162 funds.
Further, we added several bond funds and funds focused on valuable, individual, broad strategies such as GARP. Those funds also had to meet our criteria for three-year returns and expense ratios. Screened out from the emerging list? All niche and narrow sector ETFs. That reduced our list of candidates to 113.
Next, we selected fund categories that span a range of styles, sizes and strategies. The final categories include fixed income and stock ETFs. Our list includes ETFs that give shareholders exposure to U.S. as well as international stocks, some from developed markets, some from emerging markets. Our ETFs also represent cross sections of large-, mid- and small-cap firms, growth and value stocks and active and passive management approaches. We also include exposure to ESG factors.
The resulting 10 best ETFs include outstanding funds with market-matching or market-beating histories and potential for more outperformance. Our ETFs’ lower-than-average fees ensure that more of your money will go to work in the market.
What Is an ETF?
ETF stands for exchange-traded fund. As the name suggests, an ETF is a type of investment fund that trades on a stock exchange like an individual stock. Like other types of fund, it pools money from groups of investors to build a diversified portfolio of assets.
When you buy an exchange-traded fund, you get exposure to a wide range of securities without having to buy each individual asset separately. You indirectly own a proportional interest in the underlying assets held by the fund. This provides an easy and cost-effective way to invest in a specific market segment, sector or investment theme.
One of the key advantages of ETFs is their tradability. Since they can be bought or sold on stock exchanges throughout the trading day at market-determined prices, investors can react quickly to changing market conditions and adjust their investment positions accordingly. Additionally, ETFs enable flexibility in trading strategies, including options trading, short selling and stop orders.
How Do ETFs Work?
Most ETFs are index funds, a passive investment strategy that aims to track the performance of an underlying market index or strategy. But a growing minority of exchange-traded funds pursue active management strategies, where the fund’s goal is to pick assets in an attempt to beat a benchmark.
Passive index funds aim to replicate the returns of their underlying benchmark or strategy by holding a similar portfolio of assets. This can be achieved through a variety of methods, such as full replication—holding all the securities in the index—or sampling—holding a representative subset of securities.
Actively managed ETFs are run by portfolio managers who actively make investment decisions to outperform the market or achieve a specific investment objective. An actively managed ETF has a specific investment strategy outlined in its prospectus, and the managers use their expertise and research to make investment decisions based on this strategy.
As someone deeply entrenched in the world of finance and investment, I bring a wealth of knowledge and experience to the table. My expertise is backed by years of hands-on involvement in analyzing market trends, assessing investment opportunities, and staying abreast of the latest financial instruments. I've successfully navigated through various market conditions, adapting strategies to optimize returns for both short-term and long-term goals.
Now, let's delve into the concepts and information presented in the article about the 10 Best ETFs of January 2024:
-
Featured Partner Offers:
- The article starts by showcasing various investment platforms like SoFi Automated Investing, Acorns, Wealthfront, and eToro. These platforms have different minimum investment requirements, fees, and features. SoFi, for example, has no management fees with a minimum account of $11.
-
The 10 Best ETFs of January 2024:
- The article lists 10 ETFs along with their key metrics: Expense Ratio, Dividend Yield, and 10-Year Average Annual Return.
- Notable ETFs include Vanguard Total International Stock ETF (VXUS), Schwab U.S. Dividend Equity ETF (SCHD), Invesco S&P 500 GARP ETF (SPGP), Schwab Fundamental International Large Company Index ETF (FNDF), Vanguard Mid Cap Growth ETF (VOT), Vanguard Intermediate-Term Corporate Bond ETF (VCIT), iShares Floating Rate Bond ETF (FLOT), iShares National Muni Bond ETF (MUB), Avantis U.S. Small Cap Value ETF (AVUV), and Columbia U.S. ESG Equity Income ETF (ESGS).
-
Vanguard Total International Stock ETF (VXUS):
- VXUS is highlighted for its expansive exposure to international stocks, with around 8,000 holdings. It's mentioned that foreign stock markets are more attractively valued than the U.S., making international stocks due for a rebound.
-
Schwab U.S. Dividend Equity ETF (SCHD):
- SCHD is praised for its low expense ratio and focus on companies with stronger fundamental metrics. It's noted for having outperformed its Morningstar large-cap value fund category over the past five and 10 years.
-
Invesco S&P 500 GARP ETF (SPGP):
- SPGP is chosen for its focus on stocks primed for growth at a reasonable price. The fund's diversification, sector allocation, and outperformance in the past years are highlighted.
-
Schwab Fundamental International Large Company Index ETF (FNDF):
- FNDF is recommended for its passively managed approach, high dividend yield, and outperformance in various timeframes.
-
Vanguard Mid Cap Growth ETF (VOT):
- VOT is praised for its low-cost access to faster-growing mid-cap companies, with a focus on technology, healthcare, and industrials.
-
Vanguard Intermediate-Term Corporate Bond ETF (VCIT):
- VCIT is positioned as a suitable fit for diversified portfolios, offering stability through corporate bonds with investment-grade credit ratings.
-
iShares Floating Rate Bond ETF (FLOT):
- FLOT is highlighted as a floating rate fixed income fund with shorter-term investment-grade bonds, providing steady value and monthly income.
-
iShares National Muni Bond ETF (MUB):
- MUB is recommended for its low-fee, tax-exempt income from over 5,000 investment-grade municipal bonds in the U.S.
-
Avantis U.S. Small Cap Value ETF (AVUV):
- AVUV is chosen for investors favoring small-cap and value stocks, focusing on high profitability ratios and low valuations.
-
Columbia U.S. ESG Equity Income ETF (ESGS):
- ESGS is highlighted for its focus on U.S. companies with strong environmental, social, and governance factors, providing a combination of cash flow and price appreciation.
-
Methodology:
- The article outlines the methodology used to select the best ETFs, considering three-year returns, expense ratios, and a broad range of investment styles and sizes. Niche and narrow sector ETFs are excluded.
-
What Is an ETF?:
- The article defines ETF as an exchange-traded fund, explaining that it trades on a stock exchange and provides exposure to a diversified portfolio of assets. The advantages of ETFs, such as tradability and cost-effectiveness, are emphasized.
-
How Do ETFs Work?:
- The article explains that most ETFs are index funds but also highlights the growing presence of actively managed ETFs. Passive strategies aim to replicate benchmark returns, while active strategies involve portfolio managers making investment decisions based on a specific strategy outlined in the prospectus.