Top ETF picks from market analysts.
Recently, many firms have begun offering exchange-traded fund ratings to show which ETFs might be worth your while. It’s not always an apples-to-apples comparison, because some funds hold only a few dozen stocks while others can hold a few thousand. That said, the basic idea behind finding the top-rated ETFs is to account for criteria such as expenses, tracking differences between underlying assets and performance against a common benchmark. There’s no guarantee that a fund that is near the top in these factors will make you rich, but there is a good chance it will outperform its peers. Here are nine top-rated ETFs worth a look.
Vanguard Mid-Cap ETF (ticker: VO)
It’s hard to give top marks to a small-cap fund these days, given the volatility in the stock market and economic uncertainty creating pressures on smaller companies. But a “Goldilocks” mid-cap fund like this Vanguard offering wins top rankings by relying on stocks that aren’t too big to be stuck in their ways but aren’t so small that they fall apart in tougher times. Take “athleisure” giant Lululemon Athletica (LULU), one of the fund’s top holdings, as a strong example of that concept. This Vanguard ETF that tracks midsized stocks has a five-star rating from fund research firm Morningstar, both overall and for its 10-year track record. Similarly, research firm Lipper gives VO a 5 out of 5 rating.
iShares U.S. Consumer Services ETF (IYC)
Anyone familiar with the ETF universe knows there are hundreds of offerings that focus on individual sectors and exclude the rest of the market. But some of those sectors are in big trouble in 2020 — and even when they’re not, many of those sector ETFs end up lagging other funds. This iShares consumer fund stands out, however, as it has a bent toward services that fuels outperformance. This includes entertainment giant Walt Disney Co. (DIS) and home-improvement store Home Depot (HD). IYC has a 5 out of 5 rating from analysts at CFRA, as well as top marks in Lipper’s 10-year return rankings out of 32 similar funds.
Invesco S&P 500 Equal Weight Industrials ETF (RGI)
A quirky fund from Invesco, this “equal weight” ETF takes roughly 70 industrial stocks of all shapes and sizes and rebalances regularly to ensure no single offering is worth more than about 1.6% of the total assets. That allows $4 billion valve pump supplier Flowserve Corp. (FLS) to appear side by side with $130 billion logistics giant United Parcel Service (UPS). This is a great way to ensure you have a portfolio weighted toward a specific sector like industrials, and with a top rank from CFRA, RGI could be your best way to play industrials if you want exposure to this particular sector.
Health Care Select Sector SPDR Fund (XLV)
Another sector fund that makes the top of the list is this health care ETF. It’s a grab bag of the big industry names that you probably expect, from diversified health care giant Johnson & Johnson (JNJ) to insurer UnitedHealth Group (UNH). Health care stocks are always a low-risk bet, as patients will cut back on many other expenses before they stop seeking treatments that keep them healthy and active. But particularly in the wake of pandemic fears lately, these stocks make perfect sense for investors. This fund gets four stars from Morningstar, and 5 out of 5 from CFRA.
iShares U.S. Medical Devices ETF (IHI)
Related to a bullish take on the prior health care fund, many analysts also give top marks to the iShares U.S. Medical Devices ETF. Many factors are the same as with larger and broader health care funds, but with IHI, investors get exposure to companies making everything from specialized heart valves to high-tech surgery lasers. This fund includes only about 60 holdings at present, such as Thermo Fisher Scientific (TMO) and Medtronic (MED) — not surprising, given its focused approach. IHI gets a trifecta of the highest ratings from Morningstar, Lipper and CFRA.
Vanguard Total International Stock ETF (VXUS)
A well-balanced portfolio should include overseas stocks as well as domestic investments. And this one-stop index fund from Vanguard allows investors to get easy access to international names with an ex-U.S. strategy that plays all markets outside of America. As a result, it includes many large companies you have likely heard of, such as Switzerland’s Nestle (NSRGY) and Japan’s Toyota Motor Corp. (TM). About 17% of the fund is in Japan, with another 11% in China and 10% in the U.K. as the top three countries based on current allocations. VXUS gets a top rating from Lipper and a four-star rating from Morningstar.
WisdomTree Europe Hedged Equity Fund (HEDJ)
A slightly more focused international fund that is winning over analysts lately is HEDJ, an ETF benchmarked to European stocks. It also includes currency hedges to account for differences in foreign exchange rates that could weigh against performance. Collectively, the roughly 100 stocks in this ETF cover the biggest names on the continent, including French pharmaceutical firm Sanofi (SNY) and Netherlands-based consumer products giant Unilever (UL). And thanks to the unique currency hedge, you won’t see profits shaved away by fluctuations in the value of the euro or dollar. This fund gets a 5 out of 5 rating from CFRA.
iShares MSCI KLD 400 Social ETF (DSI)
A popular approach to investing in 2020 is to focus on sustainability and social justice issues, even as you put your money into the market in pursuit of profits. With roughly 400 stocks, this iShares ETF is effectively the S&P 500 index of major U.S. corporations but excluding the 100 names that don’t meet high standards on the list of environmental, social and governance criteria. As a result, less than 2% of the portfolio is in energy stocks and more than 30% is weighted in information technology. This fund has really connected with investors and analysts since its 2006 inception, with a top rating from both Lipper and CFRA.
iShares ESG MSCI EM ETF (ESGE)
If you want your ESG investments to have more of a growth flavor, then consider this top-rated emerging markets fund from iShares. At present, the portfolio of more than 300 stocks includes companies such as Asian e-commerce giant Alibaba Group Holding (BABA) and South Africa telecom giant Naspers (NPSNY). If you want to invest overseas in fast-growing emerging markets but still want to invest with a conscience, this fund gets strong marks; ESGE has a four-star rating from Morningstar at present and is rated 4 out of 5 overall at Lipper.
Nine top-rated ETFs to buy:
— Vanguard Mid-Cap ETF (VO)
— iShares U.S. Consumer Services ETF (IYC)
— Invesco S&P 500 Equal Weight Industrials ETF (RGI)
— Health Care Select Sector SPDR Fund (XLV)
— iShares U.S. Medical Devices ETF (IHI)
— Vanguard Total International Stock ETF (VXUS)
— WisdomTree Europe Hedged Equity Fund (HEDJ)
— iShares MSCI KLD 400 Social ETF (DSI)
— iShares ESG MSCI EM ETF (ESGE)
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Update 08/12/20: This story was published at an earlier date and has been updated with new information.