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Best ETFs
Narrowing down the best exchange-traded funds (ETFs) from a vast array is like handpicking the ten most breathtaking beaches worldwide—it’s a challenge with myriad choices, each appealing in its unique way.
In our pursuit of the finest ETFs, we’ve curated a diverse selection, encompassing both passively and actively managed funds.
Some spotlight specific traits, such as small-cap companies, while others zone in on distinct geographies, markets, or regions. There are also those dedicated to particular industries or market sectors.
We undertook this formidable endeavor by pinpointing well-managed, low-fee, and high-performing funds across various categories.
Our aim: catering to investors seeking to complement an existing portfolio or construct a brand-new one. Our primary focus remains on strategies positioned to play a pivotal role in your portfolio.
| ETFs | Expense Ratio | Industry |
|---|---|---|
| Vanguard Total International Stock ETF (VXUS) | 0.07% | International Stocks |
| Schwab U.S. Dividend Equity ETF (SCHD) | 0.06% | U.S. Dividend-Paying Companies |
| Invesco S&P 500 GARP ETF (SPGP) | 0.34% | S&P 500 Growth at a Reasonable Price (GARP) |
| Schwab Fundamental International Large Company ETF (FNDF) | 0.25% | International Large Companies with Fundamental Approach |
| Vanguard Mid Cap Growth ETF (VOT) | 0.07% | Mid Cap Growth Companies |
| Vanguard Intermediate-Term Corporate Bond ETF (VCIT) | 0.04% | Intermediate-Term Corporate Bonds |
| iShares Floating Rate Bond ETF (FLOT) | 0.15% | Floating Rate Bonds |
| iShares National Muni Bond ETF (MUB) | 0.07% | U.S. Municipal Bonds |
| Avantis U.S. Small Cap Value ETF (AVUV) | 0.25% | U.S. Small Cap Value Stocks |
| Columbia U.S. ESG Equity Income ETF (ESGS) | 0.35% | U.S. Equity Income with ESG Focus |
1️⃣ Vanguard Total International Stock ETF (VXUS)
- Expense Ratio: 0.07%
- Dividend Yield: 2.94%
- 10-Year Avg. Ann. Return: 3.80%
Why VXUS?
The Vanguard Total International Stock ETF stands out for a compelling reason. Presently, key foreign stock markets display more appealing valuations compared to the widely tracked S&P 500 Index.
Leveraging the reversion to the mean principle, international stocks are poised for a potential resurgence.
With a vast portfolio of nearly 8,000 holdings, VXUS offers extensive exposure to international stocks. Notably, some component stocks conduct business in the U.S., such as Taiwan Semiconductor Manufacturing (TSM) and Nestle (NSRGY).
Approximately three-quarters of VXUS focuses on stocks rooted in developed markets, while about 70% of its holdings comprise large-cap stocks. The remainder consists of mid- and small-cap stocks.
VXUS mirrors the collective insight of the investment realm, owing to its market-capitalization weighted approach. This ETF serves as an ideal ‘set-it-and-forget-it’ international-stock fund, purposefully crafted as a core portfolio asset.
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2️⃣ Schwab U.S. Dividend Equity ETF (SCHD)
- Expense Ratio: 0.06%
- Dividend Yield: 3.58%
- 10-Year Avg. Ann. Return: 10.68%
Why SCHD?
For investors in pursuit of robust dividends, high-quality stocks, and capital appreciation, the Schwab U.S. Dividend Equity ETF is a standout choice.
Its attractive low expense ratio is just the beginning. SCHD strategically curates a portfolio comprising companies boasting stronger fundamental metrics compared to their peers.
SCHD’s portfolio, comprising around 100 holdings, leans towards large-cap value stocks, many of which are consistent dividend payers. Differing from the tech-heavy S&P 500, its primary holdings lie within industrials, health care, financials, and consumer staples.
Noteworthy is SCHD’s outperformance in the Morningstar large-cap value fund category over the past five- and 10-year periods. Investors in search of a passive index fund that consistently delivers considerable dividends and frequently outshines its counterparts should explore SCHD.
3️⃣ Invesco S&P 500 GARP ETF (SPGP)
- Expense Ratio: 0.34%
- Dividend Yield: 1.13%
- 10-Year Avg. Ann. Return: 14.14%
Why SPGP?
The Invesco S&P 500 GARP ETF is tailored for companies positioned for growth at a reasonable price.
Selecting approximately 70 holdings from the S&P 500, it focuses on companies exhibiting the highest growth scores, coupled with what Invesco identifies as strong value and high-quality composite scores.
SPGP is well-diversified, with its top 10 holdings accounting for roughly 20% of the fund’s assets. Healthcare constitutes the largest sector within SPGP, closely followed by technology, financials, and industrials.
A notable feature of SPGP is its larger exposure to mid- and small-cap stocks compared to the S&P 500, contributing to its higher volatility than the large-cap benchmark.
However, if you’re seeking a cautious yet high-performing fund that has consistently outpaced its Morningstar category over the past three, five, and 10 years, SPGP deserves consideration.
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4️⃣ Schwab Fundamental International Large Company Index ETF (FNDF)
- Expense Ratio: 0.25%
- Dividend Yield: 3.00%
- 10-Year Avg. Ann. Return: 4.59%
Why FNDF?
A well-diversified investment portfolio necessitates international exposure. The 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 exceeding the market average represented by the S&P 500 Index. FNDF leans towards large-cap value and core stocks, outperforming its Morningstar category consistently over the past one, three, five, and 10 years.
5️⃣ Vanguard Mid Cap Growth ETF (VOT)
- Expense Ratio: 0.07%
- Dividend Yield: 0.69%
- 10-Year Avg. Ann. Return: 9.80%
Why VOT?
Growth-oriented funds target companies exhibiting higher-than-average growth rates across key metrics like sales and cash flow.
The Vanguard Mid Cap Growth ETF boasts a five-year earnings growth rate of approximately 29%, surpassing the Morningstar mid-cap growth category average by four percentage points.
VOT predominantly allocates to technology, healthcare stocks, and industrials. This fund consistently outperforms its Morningstar category over the past one, three, five, and 10 years.
Offering cost-effective access to faster-growing mid-cap companies, VOT appeals to aggressive growth investors.
6️⃣ Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
- Expense Ratio: 0.04%
- Dividend Yield: 3.77%
- 10-Year Avg. Ann. Return: 2.75%
Why VCIT?
Increasingly fitting into diversified portfolios, the Vanguard Intermediate-Term Corporate Bond ETF combines stability and yield, complementing stock investments. Bonds often exhibit lower volatility than stocks and serve as a stabilizing asset.
VCIT holds around 2,100 investment-grade corporate bonds maturing in five to 10 years, with an average effective duration of about six years.
With 95% of bonds rated in the A and BBB categories, investors can anticipate a potential rise in bond prices as interest rates plateau or decline in the coming years.
7️⃣ iShares Floating Rate Bond ETF (FLOT)
- Expense Ratio: 0.15%
- Dividend Yield: 5.16%
- 10-Year Avg. Ann. Return: 1.77%
Why FLOT?
The iShares Floating Rate Bond ETF operates as a floating rate fixed-income fund, comprising over 300 shorter-term investment-grade bonds maturing between one and five years.
With an average effective duration barely lasting a week, FLOT’s shorter-term and floating-rate nature maintains relatively stable value. Its monthly income caters to investors seeking current higher yields and regular cash flow payments.
Solid credit-rated bonds form the bulk of FLOT’s holdings, with a majority rated A, AA, or AAA. Around one-fifth of FLOT’s holdings are government bonds, while approximately 75% are corporate bonds.
Investors seeking higher yields compared to savings accounts, along with near-term cash access, might consider FLOT as an alternative to certificates of deposit.
8️⃣ iShares National Muni Bond ETF (MUB)
- Expense Ratio: 0.07%
- Dividend Yield: 2.45%
- 10-Year Avg. Ann. Return: 2.60%
Why MUB?
Known for low-fee, well-crafted ETFs, the iShares National Muni Bond ETF is no exception. It offers wealthier investors federally tax-exempt income at a low cost.
MUB holds over 5,000 investment-grade municipal bonds across the U.S., providing a tax-free yield equivalent to a taxable yield of 3.461% for a married joint filing couple in the 24% bracket.
With an effective duration of about six years, MUB’s regional distribution indicates potential state tax benefits for residents of states like New York and California. For investors seeking federally tax-exempt monthly cash flow, MUB serves as an economical choice.
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9️⃣ Avantis U.S. Small Cap Value ETF (AVUV)
- Expense Ratio: 0.25%
- Dividend Yield: 1.77%
- Avg. Ann. Return Since Inception (Sept. 2019): 17.36%
Why AVUV?
Based on Nobel laureates Eugene Fama and Kenneth French’s research, AVUV focuses on U.S. small caps with high profitability ratios and low valuations, aligning with the premise that small-cap and value stocks tend to outperform over extended periods.
With a portfolio of more than 700 stocks boasting higher profits-per-book-value than its benchmark, AVUV diversifies well, allocating less than 10% to its top-10 holdings.
Concentrated in financials, consumer cyclicals, industrials, and energy, these sectors constitute around 80% of the fund’s assets, elevating portfolio risk. However, AVUV’s three-year average annual performance surpasses its Morningstar small-cap value category significantly.
🔟 Columbia U.S. ESG Equity Income ETF (ESGS)
- Expense Ratio: 0.35%
- Dividend Yield: 2.49%
- Avg. Ann. Return Since Inception (June 2016): 10.66%
Why ESGS?
Columbia Threadneedle screens for U.S. companies excelling in environmental, social, and governance factors, forecasting robust long-term growth.
ESGS focuses on firms with financial stability, consistent cash flow, and potential for sustained dividend payments from the ESG universe.
ESGS holds about 100 mainly large-cap stocks, favoring value and blend stocks, with the top-10 stocks constituting roughly 40% of the fund’s assets.
Its relatively high dividend yield makes it a compelling choice for ESG investors seeking both cash flow and price appreciation, albeit with a high turnover rate, well over 100% annually.
ETFs FAQ
How to Find the Best ETFs?
Compiling the best ETFs involved a meticulous exploration across multiple sources. Initially, from a vast universe of thousands of ETFs, we sieved through equity funds, identifying those ranking in the top 20% for three-year returns.
Additionally, we honed in on ETFs boasting expense ratios within the lowest 40%. These stringent criteria narrowed down our candidates to a manageable 162 funds.
Expanding our scope, we included bond funds and those emphasizing valuable, broad strategies like GARP, all while maintaining the same criteria for three-year returns and expense ratios.
Niche and narrowly focused sector ETFs were excluded, further refining our list to 113 potential candidates.
Our subsequent selection involved diverse fund categories spanning various styles, sizes, and strategies.
This final curation encompasses both fixed income and stock ETFs, offering shareholders exposure to U.S. and international stocks—some from developed markets and others from emerging markets.
Our ETFs represent a spectrum, embracing large-, mid-, and small-cap firms, encompassing growth and value stocks, and encompassing both active and passive management approaches. Additionally, we factor in exposure to ESG considerations.
The resulting compilation of the 10 best ETFs showcases exceptional funds with histories that match or surpass market performance, holding promising potential for continued outperformance.
The below-average fees associated with our selected ETFs ensure that more of your invested capital works efficiently within the market.
What’s an ETF?
ETF stands for exchange-traded fund, an investment fund that trades similarly to individual stocks on a stock exchange. It’s a pooling of investors’ money to build a diversified portfolio of assets.
When you invest in an ETF, you gain exposure to a broad range of securities without purchasing each asset separately. Essentially, you indirectly own a share of the assets held by the fund. This offers a convenient and cost-efficient way to invest in specific market segments, sectors, or investment themes.
One of the standout features of ETFs is their tradability. They can be bought or sold on stock exchanges throughout the trading day at prices determined by the market.
This flexibility allows investors to react promptly to market changes and adjust their investments accordingly. ETFs also enable various trading strategies, including options trading, short selling, and stop orders.
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How Do ETFs Work?
Most ETFs follow an index fund approach, tracking the performance of an underlying market index or strategy. While the majority passively replicate the index returns, a smaller portion actively manage their assets, aiming to surpass a benchmark.
Passive index ETFs aim to mirror the returns of their underlying index by holding a similar portfolio of assets. This can be achieved by holding all or a representative subset of securities from the index.
Actively managed ETFs are steered by portfolio managers who actively make investment decisions to outperform the market or fulfill a specific investment objective.
These managers follow a defined investment strategy outlined in the fund’s prospectus, leveraging their expertise and research to drive investment choices aligned with the strategy.
How to Buy an ETF?
1. Learn about ETFs
Begin by understanding how ETFs work, their advantages, disadvantages, and associated risks. This knowledge will guide informed investment decisions.
2. Clarify Your Goals
Determine whether you seek long-term growth, regular income, or diversification. Align your investment strategy with these goals while selecting ETFs.
3. Define Your Time Horizon
Consider your current age and the timeline for needing your investment returns. Longer time horizons generally allow for more equity allocation, while shorter ones tend towards low-risk fixed-income assets.
4. Assess Your Risk Tolerance
Understand your risk tolerance, which evolves with your time horizon. Longer timelines often accommodate more risk, whereas reduced time frames necessitate lower risk exposure due to limited recovery time from market downturns.
5. Research ETFs
Explore and analyze potential ETFs based on historical performance, expense ratios, tracked indexes or sectors, diversification, liquidity, and fund objectives. This research aids in selecting suitable funds.
6. Implement a Monitoring Plan
Once invested, regularly monitor your ETF portfolio. Stay updated on market trends, economic news, and changes in underlying assets. Periodically rebalance your portfolio to maintain your desired asset allocation.
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