Many choices for investors. Investors have more options and low-fee structures than ever. According to research firm ETFGI, there are more than 5,000 exchange-traded funds globally. And thanks to the index fund revolution led by…
Many choices for investors.
Investors have more options and low-fee structures than ever. According to research firm ETFGI, there are more than 5,000 exchange-traded funds globally. And thanks to the index fund revolution led by the late Jack Bogle at Vanguard, many of these funds charge just a few dollars each year for access to these funds. But with so many investments options, where should investors turn first? To help you get started, here are 20 of the best ETFs for 2019 that provide a comprehensive menu of your investment options. Every portfolio is different, with uniquely personal goals, but the following list of funds have something to offer just about every investor.
If you want the best ETF to buy in 2019 for complete stock market coverage, look no further. Comprised of more than 3,500 U.S. companies, VTI is the simplest and most effective way to get broad exposure to Wall Street. Collectively, these components span the biggest corporations such as Apple (AAPL) to small-cap stocks worth only a few hundred million dollars in market capitalization. As is typical of a Vanguard fund, this ETF is a passively managed index fund that is incredibly cheap to access. VTI charges 0.04 percent in fees, or just $4 annually on every $10,000 invested, and is among the cheapest of all ETFs.
If you prefer to focus on the big companies that make up the S&P 500 index, then SPY is your best bet. This fund is the go-to choice for many investors and boasts a staggering $250 billion in assets under management at present to represent the largest ETF on the planet — and one of the oldest, with an inception date of 1993. There’s good reason for this, since SPY is a cost-effective way to invest across the largest and most meaningful U.S. stocks including Microsoft Corp. (MSFT) and Johnson & Johnson (JNJ). It’s also remarkably cheap, with an expense ratio of 0.09 percent.
A step down in size, this iShares fund that focuses on the S&P 400 — that is, the next 400 largest stocks in the U.S. after the 500 that make up the large-cap S&P 500 index of the prior fund. Think names like Dominos Pizza (DPZ) and utility Atmos Energy Corp. (ATO). Though some investors prefer scale, mid-sized stocks have their appeal because they are more agile and sometimes have more upside than entrenched giants. It’s obviously much harder for a company like Walmart (WMT) with $500 billion in revenue to double, but a small company can pull that off if things go well.
The natural progression after the last two funds is to arrive at an ETF focused on the smallest tier of U.S. stocks. These investments are more volatile than the larger companies, but some investors think the risk is worth it because stocks here can deliver much larger returns as they grow. SCHA is the perfect approach to this strategy, with a fund comprised of some 1,750 smaller-sized stocks and commanding an impressive $7.6 billion under management. If you want to go small, this is one of the most effective ways to do so — and with an expense ratio of just 0.05 percent, it’s also one of the most affordable.
Some investors care less about the size of their stocks than they do about the size of their dividend payments. Regular distributions to shareholders can create an income stream that many retirees rely upon to pay their living expenses without slowly bleeding their nest egg dry, and many long-term investors like the near-certainty of dividends to supplement returns and provide a baseline of growth. This popular Vanguard fund biases toward substantial dividend payers like Johnson & Johnson and J.P. Morgan Chase & Co. (JPM), and is comprised of 397 large and mid-sized companies. Collectively, they provide an annual dividend yield of about 3.4 percent at present.
There are some investors who may see a yield of about 3 percent as rather lackluster. After all, many bond funds offer a similar payout without the same risk of the stock market. If this is your philosophy, then the Global X SuperDividend ETF offers a targeted list of 100 of the highest dividend yielding securities in the world. This moves you away from stable mega-caps like J&J. Instead, you’ll get little-known energy companies or embattled retailers like GameStop Corp. (GME) that have seen their yields soar as share prices dropped. However, the result is a yield significantly higher than the typical fund at around 8.4 percent annually.
Another popular portfolio tactic is to bias toward sectors that investors think offer the best prospects and avoid those facing headwinds. At the top of any investor’s list of high-potential sectors should be technology, with fast-growing names like Amazon.com (AMZN) and dominant mega-caps Microsoft regularly topping the list of best-performing stocks in the last few years. With more than 300 holdings, this Vanguard fund will give you exposure to tech leaders like these as well as smaller tech companies you may not have heard of.
Strategy: Sector-focused stocks
Consumer Discretionary Select Sector SPDR Fund (XLY)
This $12 billion consumer fund is one of the more popular ETFs generally, and far and away the most popular way to play the powerhouse that is the American consumer. XLY features some of the biggest brands, from home improvement retailer Home Depot (HD) to fast-food giant McDonald’s Corp. (MCD) to athletics icon Nike (NKE). As most investors know, consumer-driven categories represent about two-thirds of overall economic activity. And given the 65 massive brands that make up this ETF, investors can be confident they are accessing the power of U.S. consumers.
Another dynamic element of the U.S. economy is health care. Many investors are most interested in excluding some of the legacy pharmaceutical firms and focus more on fast-growing startups developing the next generation of cancer-fighting drugs, surgery tools or Alzheimer’s treatments. This SPDR biotech fund does exactly that. It has a higher risk profile, as its holdings include development-phase companies that can sometimes be operating at a deep loss as they focus on research instead of harvesting revenue from proven treatments. But with about 120 holdings and an “equal weight” methodology, it’s diversified enough to help smooth out some of the bumps along the road to next-generation cures.
Real estate is another popular investment flavor. As evidenced by the never-ending infomercials about flipping houses or reformulating your mortgage, there is a huge industry around property that makes this sector worth exploring. This Vanguard ETF looks beyond just residential trends, however, with commercial real estate giants including mall operator Simon Property Group (SPG) and medical office space provider Welltower (WELL). The result is a fund diversified across forms of real estate, but tied to the overall investment theme best described by Will Rogers: Invest in land, because they aren’t making any more of it.
There is a lot of space — and a lot of economic opportunity — beyond the United States. This Vanguard ETF has a portfolio of more than 8,100 companies to create one of the most comprehensive lists of stocks available for retail investors in one place. There’s no avoiding U.S. mega-caps like Apple, and roughly half of the fund is allocated to American stocks. But with almost 20 percent of the fund in Europe there are many foreign multinationals on the list, and even emerging markets have a spot at the table with about 10 percent of the fund in fast-growing regions across Latin America and Asia.
While a little bit of a tongue twister, this iShares fund is an important option for greater geography. This global fund excludes American corporations from its makeup, hence the ex-U.S. in the name. The other piece of jargon there, ACWI, stands for all-cap world index. The result for investors is broad exposure to other markets, making this ETF a great complement to any portfolio needing of geographic diversity. ACWX has more than 1,200 stocks, with the largest focus Japan at 16 percent of assets and the U.K. at 11 percent. This is a very diversified fund and a great way to add a global flavor to your investments.
Speaking of geography, another strategy is to focus on a specific country. That’s where FXI comes in. With more than $6 billion in total assets, this China-focused fund is the most popular single-country investment for those looking to play this hot region and cut out other emerging markets. Companies in this fund include tech powerhouse Tencent Holdings (TCHEY) and telecom behemoth China Mobile Ltd. (CHL). Though China’s annual growth rate has slowed to its weakest pace since the financial crisis, GDP expansion is still running at more than 6 percent annually — meaning many investors still see this region as a key part of any long-term growth portfolio.
Experts say a well-rounded portfolio should include bonds as a low-risk backbone. Even aggressive investors may want to allocate at least a small portion of their portfolio to bonds, even if the investment is not as exciting as a high-flying tech stock. This long-term Treasury fund from Vanguard will never set the world on fire with tremendous returns. However, with a portfolio of government bonds that have an average duration of about 17 years, the repayment of these debts is as sure a thing on Wall Street you can find. The current yield of this fund is about 3 percent annually.
There is real risk in investing in bonds if interest rates continue to march higher, thanks to the inverse relationship between bond yields and bond prices. One way to stay head of interest rate risk is to invest in short-term bond funds, where the time line isn’t long enough to cause a deep discount if interest rates rise. This Vanguard short-term bond fund is focused on investment grade corporate debt from big-name companies such as brewing giant Anheuser-Busch InBev (BUD), so investors still have a high degree of certainty even if the bonds aren’t as safe as U.S. Treasurys. This fund yields 3.4 percent at present.
As with stock funds, there are plenty of variations beyond simply looking at the duration of your bonds or choosing Treasurys or corporates. This actively managed Pimco bond ETF goes where it sees the opportunity, which may be the best strategy in a rising interest-rate environment where conditions are not fixed. The managers at Pimco can make decisions to avoid that pressure — for instance, right now allocating just 10 percent or so in Treasury bonds, and instead seeking out a fair amount of mortgage debt backed by the federal government instead. Current yield of this fund is 3.4 percent.
If you’re looking for extra income potential but averse to risky high-yield dividend stocks or junk bonds, then consider putting preferred stock in your portfolio. Preferred stock is a unique asset class different from common stock and kind of hybrid instrument between bonds and stocks. It’s called preferred stock for a reason, however, and most investors cannot easily access this asset class. ETFs like this Invesco fund pool investors’ resources to purchase preferred stock and unlock this investment and bigger income potential than many other funds. Currently, PGX yields 5.7 percent annually.
Gold is another investment option. Many investors understand the appeal of this alternative investment because it is one of the few assets that is uncorrelated to the stock market — meaning it moves independently of corporate profits and the broader business cycle. This independence is a big positive for a well-rounded portfolio. The IAU fund allows individuals to track gold bullion prices — and it is much easier to buy and sell this way. And at just 0.25 percent in annual fees, or $25 each year on every $10,000 invested, this gold fund could be cheaper than the cost of shipping, storing and insuring physical gold on your own.
Speaking of uncorrelated returns, this fund employs a hedge-fund like approach that deploys investments across all corners of the market — from bonds to stocks to alternatives similar to private equity funds. For investors seeking a spicier option focused on total return, and who are willing to move wherever the fund’s managers see opportunity, QAI is an intriguing choice beyond conventional stock or bond ETFs. Just remember that the active nature of this fund means that if the managers miss they can do more harm than good.
Strategy: Alternative investments
Invesco BulletShares 2019 Corporate Bond ETF (BSJC)
The capstone of a portfolio for many investors is a cash-like instrument that provides a firm floor, regardless of market gyrations. The “surest” form of this is simply holding cash in the bank, but inflation erodes value. One solution is the cash-like BSJC fund, which invests the vast majority of its resources in corporate debt from large corporations such as Microsoft and Morgan Stanley (MS) that is maturing in 2019. It’s not cash, but these investments are low risk. The yield of about 2 percent isn’t grand, but this ETF is worth a look for investors seeking safety.
Strategy: Cash-like safety
The best ETFs to buy in 2019.
Here is a list of 20 of the best ETFs to buy in 2019: