Position yourself for profits in the New Year.
Stocks are on track for yet another great year, tracking more than 20% gains — give or take, depending on your personal investments or the index you choose to follow most closely. On the heels of 18% gains for the popular S&P 500 index in 2020 and 32% gains in 2019, it seems that stock investors can do no wrong! However, as we close out one year and look ahead to the next, it’s a good opportunity to take stock of your portfolio and assess whether you have the proper investments for the future. Everyone’s personal goals are different, but the following list of the 10 best exchange-traded funds for 2022 should have something to offer everyone based on their strategy.
SPDR S&P 500 ETF Trust (ticker: SPY)
The mother of all index funds, this flagship U.S. stock fund is benchmarked to the popular S&P list of 500 of the largest corporations in America. SPY has a rich history, formed in 1993 and boasting one of the most liquid and diverse trading pools of any investment on the planet. There are other look-alike funds out there — as the strategy isn’t particularly sophisticated — and there are even ETFs cheaper than its already very affordable annual expense ratio of 0.095%, or $9.50 for every $10,000 invested. But you won’t find a more entrenched or easy-to-trade investment out there. If you’re just looking for a vanilla play on stocks, this is it — and considering the S&P 500 is up more than 22% year to date in 2021, there are worse ways to go if things continue to be bullish in 2022.
Assets under management, or AUM: $412 billion
Vanguard Russell 2000 ETF (VTWO)
Large U.S. stocks are important to hold, as they represent the biggest companies out there and thus the lion’s share of economic activity. However, smaller stocks also have a lot to offer — particularly if you believe that the steady uptick in demand from both businesses and consumers in 2021 will continue in the New Year. This Vanguard fund offers exposure to small and mid-size companies that could benefit faster and more dramatically than larger and more mature corporations. VTWO is based on the Russell 2000 index, meaning it excludes the top 1,000 American companies and then builds its portfolio with the next 2,000 stocks in line. Current top holdings include theater operator AMC Entertainment Holdings Inc. (AMC), business software company Asana Inc. (ASAN) and footwear company Crocs Inc. (CROX).
AUM: $6.9 billion
Invesco QQQ ETF (QQQ)
Another approach is the QQQ fund, the largest ETF offered by Invesco. This fund doesn’t expressly advertise it in its name, but it’s benchmarked to the Nasdaq-100 — that is, the top 100 firms listed on the technology-focused Nasdaq exchange and excluding those listed on the more traditional NYSE. That results in a very different look than the SPY, which has technology at its largest sector by weight, at 23%, followed by financial services, at 13%. QQQ instead has a whopping 48% in tech and 18% in communication services, with some stocks in that segment like Facebook operator Meta Platforms Inc. (FB) falling into this latter category despite most people seeing them as primarily Silicon Valley names. There are risks with a bias towards tech, of course, but the sector has outperformed lately as the Nasdaq-100 has racked up gains of 27% year to date to slightly top the more traditional S&P 500.
AUM: $203 billion
Schwab US Dividend Equity ETF (SCHD)
Another important stock-focused fund that could be the best ETF for 2022 for certain investors is this income-oriented fund from Schwab. It’s one of the cheapest dividend ETFs out there, with SCHD charging just 0.06% annually in fees, or a mere $6 annually on every $10,000 invested. And with a current dividend yield of 3%, compared with a mere 1.3% for the S&P 500, it is far more generous than the typical index fund. The icing on the cake is that unlike some dividend ETFs that are over-reliant on a short list of high-paying companies, no single stock is worth more than about 4% of the portfolio of SCHD at present to offer a truly diversified and low-risk investment. If you’re more interested in income than growth in 2022, this could be the fund for you.
AUM: $30.4 billion
Vanguard Total Stock Market ETF (VTI)
Of course, you may not want to worry about whether to go large or small with your stocks, or whether to go heavy on technology or heavy on dividend-paying stocks. The VTI fund takes the guesswork out of things if you feel this way by offering a look at the entire universe of publicly traded stocks in the U.S. Benchmarked to a nearly complete list of domestic corporations with more than 3,500 total positions at present, this Vanguard fund truly does offer a look at the total stock market. Granted, it’s weighted toward bigger stocks like Apple Inc. (AAPL) and Johnson & Johnson (JNJ), so the blue chips will drive performance more than the small caps. But with a widely diversified list of holdings and a rock-bottom expense ratio that’s typical of Vanguard index funds, this could be the simplest way to buy into the stock market in 2022 without overthinking things.
AUM: $283.3 billion
KraneShares Global Carbon ETF (KRBN)
With the more general index funds out of the way, let’s take a turn toward the tactical ETFs out there with KRBN. In the age of climate change, carbon markets and emissions trading schemes are on the rise. And this fund from smaller investment shop KraneShares is the primary exchange-traded vehicle for small-time investors to take a stake in carbon prices via their existing brokerage platform. With over $1.4 billion in assets, it has become quite popular recently — and for good reason. The carbon credit futures contracts tracked by this fund have regularly hit records in the last year or so, and KRBN has surged 120% so far in 2021 as a result. If you expect this trend to continue in 2022, this ETF could be worth a look.
AUM: $1.4 billion
iShares ESG Aware MSCI USA ETF (ESGU)
Taking a slightly different approach to climate issues is this ESG-aware ETF from iShares. As you may know already, that acronym stands for environmental, social and governance issues — meaning this fund tries to be aware of the growing concern among investors that their cash is invested in companies that are in line with their personal values. That means no dirty coal companies, no firearm manufacturers, and a screening methodology to ensure the board and governance structure for the holdings in this fund aren’t wholly reliant on old white men. Not only is a fund like ESGU increasingly popular because of social reasons, many investors are learning they don’t have to sacrifice performance to invest with an eye on their values; ESGU is neck-and-neck with the broader S&P 500 index year to date in 2021, and this leading ESG fund could be worth a look in 2022, too.
Current assets: $24.3 billion
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
Another tactical play is PDBC, the largest among the commodity ETFs out there as measured by assets under management. Given all the talk lately of soaring material costs, this could be a fund worth a look in 2022, either to profit from rising prices or as a hedge against inflationary pressures. To be clear, this actively managed exchange-traded fund does not own commodity related stocks you may be used to like gold miners or oil companies. Instead, it follows the raw materials themselves via an index of 15 heavily traded commodity futures contracts and other instruments. This is an important distinction because there is not a 1-to-1 correlation between the materials and the stocks that produce them. So if you want direct gain exposure to key commodity markets including oil, natural gas, corn and copper — without the K-1 tax forms that sometimes make those kinds of investments a headache for small investors — this Invesco fund is worth a look.
Current assets: $4.4 billion
Vanguard FTSE Emerging Markets ETF (VWO)
On the other side of the spectrum from rock-solid dividend stocks are emerging market stocks, which carry more risk and frankly haven’t done that well in 2021. But even though VWO has underperformed other benchmarks in 2021, tactical investors may want to take a position in this fund in the hopes of things turning around in 2022. VWO offers an emerging markets focus with stocks from regions including China and Brazil. And while you may recognize some of the bigger names in the portfolio, such as Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) and Alibaba Group Holding Ltd. (BABA), many positions on the list of some 5,200 stocks are not easily accessed by U.S. investors. According to some experts, many emerging market economies are forecast to grow at above-trend rates in 2022, so there could be an opportunity to buy in here. But as is always the case, buyers should be aware of the risks associated with investing in these more volatile regions.
AUM: $78.3 billion
Vanguard Long-Term Corporate Bond ETF (VCLT)
The nine prior ETFs on this list have been stock-focused funds, as equity markets have rallied strongly in the last year or two while interest rates have remained persistently low. But in the interest of diversification — and because past isn’t always prologue — this Vanguard bond fund could be worth a look. VCLT invests in long-dated corporate bonds, with a focus on only “investment grade” bonds from well-capitalized companies. In other words, no junk bonds here. However, the long duration of between 10 and 25 years on each of the 2,500 or so bonds means the fund can generate a slight premium on these debt instruments. Current yield is around 3%, and with the typical S&P 500 stock yielding just 1.3% with the risk of much more volatility than you see in bond markets, VCLT could be a good foundational investment for those who want more than just growth-oriented stock investments in their 2022 portfolio.
AUM: $5.41 billion
The best ETFs to buy for 2022:
— SPDR S&P 500 ETF Trust (SPY)
— Vanguard Russell 2000 ETF (VTWO)
— Invesco QQQ ETF (QQQ)
— Schwab US Dividend Equity ETF (SCHD)
— Vanguard Total Stock Market ETF (VTI)
— KraneShares Global Carbon ETF (KRBN)
— iShares ESG Aware MSCI USA ETF (ESGU)
— Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
— Vanguard FTSE Emerging Markets ETF (VWO)
— Vanguard Long-Term Corporate Bond ETF (VCLT)
More from U.S. News