Top ETFs span both defensive and growth-oriented options.
The closely watched S&P 500 index ended 2022 down just over 19%, logging its worst performance since 2008. And for investors hoping that January would start off on a better foot, stocks kicked off the first trading day of 2023 with even more declines. Struggling tech stocks such as Apple Inc. (ticker: AAPL) and Tesla Inc. (TSLA) continued to hold back the market, and some are wondering if that’s a bad sign of things to come. With all the talk of recession risks and a housing crunch, it’s anybody’s guess when things will stabilize on Wall Street. But whether you’re looking to get defensive or to reposition your portfolio in hopes of a rebound in the near future, these seven top exchange-traded funds, or ETFs, have something to offer.
Vanguard S&P 500 ETF (VOO)
Let’s start with the best ETF for January that is also the simplest: Vanguard’s low-cost S&P 500 index fund. This is a no-nonsense fund benchmarked to about 500 of the largest U.S. corporations, including Big Tech titans as well as mainstays such as health care icon Johnson & Johnson (JNJ) and megabank JPMorgan Chase & Co. (JPM). Markets go through cycles of ups and downs, and the vast majority of research shows that buying and holding for several years without overthinking things is the best course of action. If you can withstand any potential lingering volatility this year, then you may want to consider taking a hands-off approach with VOO. This is among one of the largest and cheapest ETFs of any type, and it will serve you well in the long run. VOO has an expense ratio of 0.03%, meaning you’ll pay $3 for every $10,000 invested annually.
Invesco S&P 500 Low Volatility ETF (SPLV)
With nearly $11 billion in assets under management, this low volatility alternative to the standard S&P 500 fund could be attractive to investors who want exposure to large stocks but with a slightly lower risk profile. This Invesco fund is built out of the 100 stocks in the S&P 500 benchmark that illustrate the lowest realized volatility over the past 12 months — and considering 2022 was a bit of a mess, that is a great lookback window to consider. The fund also assigns weights to each stock based on how solid it is, so it is biased toward the lowest-volatility options. To be clear, volatility cuts both ways, so this is not a guarantee for success. If stocks experience a strong rally, SPLV will very likely be left behind. It’s also worth noting that there’s no guarantee that top stocks will hang tough in 2023 despite comparatively lower volatility last year. But SPLV does offer peace of mind for those who want to look beyond standard index funds. The fund has a 0.25% expense ratio.
Vanguard Short-Term Corporate Bond ETF (VCSH)
There’s a lot of discussion about a long-term rotation going on among investors right now, as many portfolios move into bonds now that rates are rising. After years of being nearly fully invested in stocks, the yields are finally looking good enough in fixed-income markets again to consider a more balanced approach. But as rates rise, bond funds have suffered; consider that the Vanguard Total Bond Market ETF (BND), the largest bond ETF with more than $80 billion in assets, slipped 14% last year. One way investors can split the difference between the opportunity in bonds and the risk of rising rates, however, is a fund like VCSH. This short-term bond fund isn’t as sensitive to interest rate risk because bonds roll off faster. That means it only lost 7% last year, half the loss of BND and less than a third of the stock market. It also offers a juicy yield of about 5% combined with a low risk profile, thanks to rock-solid loans to corporations like Bank of America Corp. (BAC) and health care giant AbbVie Inc. (ABBV). VCSH has a 0.04% expense ratio.
iShares Gold Trust (IAU)
Rounding out our more defensive options is this top iShares ETF tied to the uncorrelated asset of physical gold. There are times when the price of gold does indeed move in step with the stock market, but there are also many times when it does not. That makes it an important part of a diversified “risk off” portfolio, as you’re not dependent on the big-name stocks in the U.S. — or small-cap stocks, international stocks or anything else. IAU is not the cheapest gold fund out there, but it is incredibly respected and well established with $27 billion in assets. If you want to put your money in physical gold bullion but don’t want to lug around gold bars and coins or worry about safes and insurance to protect it, IAU is a simple and effective option in this stormy environment. The fund charges a 0.25% expense ratio.
Vanguard Health Care ETF (VHT)
Without moralizing about the state of American health care, let’s get one thing straight: The cost of drugs, hospital stays and general medicine is only moving higher. And with an aging population that is going to demand more care, that makes the sector one of the most secure paths to growth regardless of broader economic conditions. At more than $17 billion in assets, VHT is the largest and most effective way for most investors to gain exposure to this trend. It is weighted by size, so large stocks such as insurer UnitedHealth Group Inc. (UNH) and Tylenol and Band-Aid manufacturer Johnson & Johnson top the list of components. But that only reduces the risk profile further, as you’re not taking risks on development-stage drug companies that live and die on Food and Drug Administration trials for new cures. If you want a path to growth in 2023 that looks beyond the riskiest stocks, VHT is worth considering. VHT charges a 0.1% expense ratio.
Vanguard Small-Cap Growth ETF (VBK)
If you’re really aggressive and are thinking that 2023 is going to be a turnaround year, then consider that smaller and more agile companies are typically the ones that are first out of the gate if and when things normalize on Wall Street. If you want to go “all in” on growth starting this January, then consider this leading Vanguard fund that has a median market cap of just $5 billion or so. Its top holdings likely aren’t represented in your standard index funds, including energy exploration company Texas Pacific Land Corp. (TPL) and credit rating agency Fair Isaac Corp. (FICO), to name a few. There is admittedly more risk here, as VBK was down about 30% last year to underperform the large-cap indexes. But if you’re looking for a rebound play and don’t mind a bit more volatility then VBK could be worth a look for more aggressive investors. The fund has a 0.07% expense ratio.
First Trust Nasdaq Cybersecurity ETF (CIBR)
Another growth-oriented play that is a spicier option on the menu is this cybersecurity fund. Though it dropped sharply last year, CIBR still has more than $4 billion in assets. And with Russia still at war with Ukraine and the global threat of hacking more pronounced with each passing year, there’s a lot to like about the prospects of this leading cyber ETF. Top holdings include diversified enterprise tech companies such as Cisco Systems Inc. (CSCO), along with smaller and more dedicated cybersecurity firms such as the $11 billion Okta Inc. (OKTA). If you want a footprint in growth and technology but are tired of big-name laggards in Silicon Valley, perhaps CIBR is the way to go in January. The fund charges a 0.6% expense ratio.
7 best ETFs to buy for January:
— Vanguard S&P 500 ETF (VOO)
— Invesco S&P 500 Low Volatility ETF (SPLV)
— Vanguard Short-Term Corporate Bond ETF (VCSH)
— iShares Gold Trust (IAU)
— Vanguard Health Care ETF (VHT)
— Vanguard Small-Cap Growth ETF (VBK)
— First Trust Nasdaq Cybersecurity ETF (CIBR)
More from U.S. News
8 Best Commodity ETFs to Buy Now
7 Best Consumer Staples Stocks to Buy Now
7 Stocks That Outperform in a Recession
7 Best ETFs to Buy for January originally appeared on usnews.com
Update 01/04/23: This story was previously published at an earlier date and has been updated with new information.
