Analysts say these are some of the top ETFs around.
At the end of 2021, total assets under management in U.S. exchange-traded funds amounted to more than $7.2 trillion, according to the New York Stock Exchange. Part of the reason for the popularity of this asset class, according to DJ Tierney, senior portfolio strategist for Charles Schwab Asset Management, is that “ETFs in many cases offer low-cost ways to get real diversification in a portfolio.” ETFs are also a good way for investors to target specific corners of the market. Karen Veraa, head of iShares Fixed Income Strategy, says that ETFs give investors “very precise market exposure, but they’re still low cost.” Here are nine top-rated ETFs to buy.
Schwab U.S. TIPS ETF (ticker: SCHP)
Treasury inflation-protected securities, or TIPS, are designed to give investors protection against inflation. “Investors tend to be less aware of the TIPS category,” Tierney says, but SCHP “is a very straightforward way to get access to that market.” Tierney says this ETF is the most “inclusive representation of the entire TIPS market that can be purchased with a single share of stock.” Morningstar gives SCHP a gold analyst rating, the highest analyst rating by the firm. Morningstar’s analyst ratings of gold, silver, bronze, neutral and negative look toward future performance. SCHP also carries a Morningstar rating of four out of five stars, which measures the ETF’s past performance. SCHP has a 0.05% expense ratio, meaning you’ll pay only $5 annually in management fees for every $10,000 invested.
Vanguard Total International Stock ETF (VXUS)
According to Rich Powers, head of ETFs and index product management at Vanguard, Vanguard’s ETFs are distinguished by providing individual investors low-cost offerings that track their benchmarks well. VXUS is a passively managed international fund that tracks the performance of the FTSE Global All Cap ex US Index, which is a market-capitalization-weighted index that attempts to mimic the performance of companies outside the U.S. in developed and emerging markets. This strategy provides investors with a good way to diversify with international exposure. Launched in January 2011, the fund is rated gold and three stars from Morningstar. VXUS has an expense ratio of 0.08%.
Vanguard Tax-Exempt Bond ETF (VTEB)
According to Powers, this offering has been “incredibly disruptive” to the industry overall. VTEB tracks its benchmark, which is the investment-grade segment of the U.S. municipal bond market as defined by S&P’s National AMT-Free Municipal Bond Index. Powers says this allows VTEB to closely track its benchmark without carrying its holdings in a “one to one” weight. This passively managed fund has an expense ratio of 0.06%. VTEB also has an average annual return of 3.49% since inception in 2015, while its benchmark has a 3.52% return over the same period. VTEB has a gold rating from Morningstar. Lan Anh Tran, associate analyst at Morningstar, says the fund “offers a broad portfolio of investment-grade tax-exempt municipal bonds at an attractive price.”
Vanguard Total Stock Market ETF (VTI)
Ben Johnson, director of global ETF research at Morningstar, says VTI is perfect “for investors who want a one-and-done fund for exposure to the U.S. market.” VTI was launched by Vanguard in 2001. The fund attempts to replicate U.S. equity market composition, and its top holdings are all megacap companies such as Apple Inc. (APPL), Microsoft Corp. (MSFT), Alphabet Inc. (GOOG, GOOGL) and Amazon.com Inc. (AMZN). Tran, who gives the fund a gold rating, says, “Vanguard’s active ownership efforts for its passive equity strategies have considerable potential.” VTI has a lifetime average annualized return of 9.04%, compared to its benchmark, which has returned an average of 9.06% annually over that same period. A passively managed fund, VTI carries an expense ratio of 0.03%, which is considerably lower than the average expense ratio of 0.81% for similar funds.
iShares Core U.S. Aggregate Bond ETF (AGG)
With more than 800 ETFs under management globally, iShares has one of the broadest ETF lineups in the industry. And AGG, which launched in 2003, is one of iShares’ oldest fixed-income offerings. It’s also the largest fixed-income ETF on the planet, with about $90 billion in total assets. The fund has a 0.04% net expense ratio, which Veraa says is “one of the cheapest ways to get bond exposure out there.” In addition, Morningstar analyst Neal Kosciulek calls AGG “an excellent investment-grade bond fund,” and says that it “boasts a low fee and conservative portfolio.” The fund tracks the Bloomberg U.S. Aggregate Bond Index, and it has a gold rating from Morningstar.
Vanguard Small-Cap Value ETF (VBR)
Unlike the other Vanguard ETFs on this list, which are all indexed to vast swaths of the overall market, VBR covers a narrower segment. VBR’s benchmark is tied to small-cap value stocks through its benchmark, the CRSP U.S. Small-Cap Value Index. This passively managed fund has a five-star and gold rating from Morningstar. Ryan Jackson, associate analyst at Morningstar, says VBR’s “broad diversification helps muffle the impact of firms that prove worthy of their modest multiples.” VBR has an average annual return since its 2004 inception of 9.55%, while its benchmark has returned 9.56%. VBR’s expense ratio is 0.07%, which is considerably less than similar funds that average 1.16% in fees.
Vanguard Real Estate ETF (VNQ)
Another Morningstar gold-rated fund, VNQ has an expense ratio of 0.12% versus similar funds’ average cost of 1.08%. This passively managed fund tracks the MSCI U.S. Investable Market Real Estate 25/50 Index. VNQ tracks the index by investing primarily in stocks issued by real estate investment trusts. This strategy has led to an average annual return since its 2004 inception of 9.79% for VNQ, while its benchmark index has returned 9.81% over the same period. Jackson says that VNQ’s “market cap-weighted portfolio and ultralow cost should make it difficult to beat over the long term.”
Vanguard Dividend Appreciation ETF (VIG)
Tran calls VIG “a solid, low-cost portfolio of high-quality dividend growers.” This passively managed fund’s benchmark is the S&P U.S. Dividend Growers Index. The index is composed of U.S. companies that have consistently increased their dividends for at least 10 consecutive years, excluding the top 25% highest-yielding companies in the list. And VIG has tracked this index pretty closely. The ETF has returned 10.4% since its inception in 2006, while the index has returned 10.52% over the same period. VIG has an expense ratio of 0.06% compared to a 0.81% average expense ratio for similar funds.
Schwab U.S. Dividend Equity ETF (SCHD)
Unlike other funds looking for high-dividend stocks, according Tierney, SCHD “focuses its index on sustainable and quality metrics behind paying those dividends.” This can help investors avoid the dividend “value trap,” when high-dividend yields turn investors toward poorly performing companies. SCHD tracks the Dow Jones U.S. Dividend 100 Index. This index uses a four-fold strategy to track high-dividend-yielding U.S. stocks by cash flow to total debt, return on equity, five-year past dividend growth and current indicated dividend yield. The fund has an expense ratio of only 0.06%. The fund has five-star and silver ratings from Morningstar.
9 top-rated ETFs to buy:
— Schwab U.S. TIPS ETF (SCHP)
— Vanguard Total International Stock ETF (VXUS)
— Vanguard Tax-Exempt Bond ETF (VTEB)
— Vanguard Total Stock Market ETF (VTI)
— iShares Core U.S. Aggregate Bond ETF (AGG)
— Vanguard Small-Cap Value ETF (VBR)
— Vanguard Real Estate ETF (VNQ)
— Vanguard Dividend Appreciation ETF (VIG)
— Schwab U.S. Dividend Equity ETF (SCHD)
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9 Top-Rated ETFs to Buy originally appeared on usnews.com
Update 02/02/22: This story was published at an earlier date and has been updated with new information.
