Exchange-traded funds let investors diversify their portfolios with a single investment rather than hand-picking individual stocks. It takes less work to buy top-rated ETFs than it does to analyze dozens of companies and construct a portfolio that aligns with your financial objectives.
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However, you still have to do some research before starting a position in an ETF, says Emily Cozad, portfolio manager and investment funds specialist for Buckingham Advisors. “When choosing an ETF to invest in, it is important to know and understand the underlying index or benchmark that it tracks, as this can play a large role in returns,” she says. “The index should be carefully reviewed to determine its relevance, transparency, approach and whether it accurately represents the defined market demographic.”
Cozad also recommends looking at an ETF’s expense ratio, historical performance and net asset value, or NAV. Normally, an ETF trades closely to its NAV, so a discount to NAV may present a buying opportunity.
Knowing what factors to look for can help investors detect top ETFs and figure out which ones align with their financial goals. These top-rated ETFs all have five-star ratings from investment research firm Morningstar and can offer good starting points:
| ETF | Expense ratio | 30-day SEC yield | YTD return as of Nov. 10* |
| VanEck Semiconductor ETF (ticker: SMH) | 0.35% | 0.76% | 55% |
| Vanguard S&P 500 ETF (VOO) | 0.03% | 1.6% | 16.6% |
| iShares U.S. Technology ETF (IYW) | 0.4% | 0.32% | 52.6% |
| Schwab U.S. Large-Cap Growth ETF (SCHG) | 0.04% | 0.46% | 39.5% |
| iShares Russell 1000 Growth ETF (IWF) | 0.19% | 0.62% | 32.3% |
| Global X U.S. Infrastructure Development ETF (PAVE) | 0.47% | 0.88% | 14.2% |
| Invesco S&P 500 Top 50 ETF (XLG) | 0.2% | 1.08% | 34.4% |
*Based on market price, Yahoo historical data.
VanEck Semiconductor ETF (SMH)
The VanEck Semiconductor ETF has been a top-performing fund that has comfortably outperformed the S&P 500 and Nasdaq-100 over the past five years. The fund has about $10 billion in assets under management and a 0.35% expense ratio.
The fund prioritizes semiconductor companies such as Nvidia Corp. (NVDA), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) and Broadcom Inc. (AVGO). Those are the top three holdings in the fund, and they make up about 40% of its total assets. Investors should be bullish on those three stocks (especially Nvidia, at 20.2% of assets) if they want to accumulate SMH shares.
The fund has generated a 55% market-price return in 2023 as of Nov. 10, and it has a 0.76% 30-day SEC yield. The rising demand for artificial intelligence has benefited many of the stocks in VanEck Semiconductors ETF. Although it’s true that SMH investors should closely follow trends in artificial intelligence, the fund outperformed the market before AI went mainstream. Semiconductors are used in many leading-edge products, such as computers, cars and appliances.
Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF tracks the S&P 500, giving investors broad exposure to the stock market. This way, you’re not limited to a particular sector, such as semiconductor companies or real estate.
Like many Vanguard funds, VOO has a very low expense ratio. Investors are only looking at a 0.03% expense ratio, which comes to $3 in fees for every $10,000 invested. The fund also has a 1.6% 30-day SEC yield. VOO has generated a 16.6% market-price return year to date as of Nov. 10 and holds $851 billion in total net assets.
The ETF focuses on large-cap companies and has a mix of value and growth investments. The fund’s three most prominent sectors are technology (28.1%), health care (13.4%) and financials (12.3%).
The top three holdings are Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN). These three stocks make up nearly 17% of the fund’s total assets. The top eight holdings are large-cap tech companies, with Berkshire Hathaway Inc. (BRK.B) and Exxon Mobil Corp. (XOM) being the ninth- and 10th-largest holdings. Each of the top 10 holdings makes up at least 1% of the fund’s total assets.
iShares U.S. Technology ETF (IYW)
The iShares U.S. Technology ETF focuses on domestic tech companies. The fund uses the Russell 1000 Technology RIC 22.5/45 Capped Index as a benchmark. IYW was established in 2000 and has $12.6 billion in total assets under management.
Investors who buy shares of IYW will get exposure to 133 holdings and a 0.32% 30-day SEC yield. The fund has a 0.4% expense ratio. Like many funds, IYW primarily focuses on large-cap tech companies. However, the weighting for Big Tech is higher for this fund than most of the other choices.
Apple and Microsoft sit at the top of the list, with approximately 18% of the fund’s total assets in each of those companies. Alphabet Inc. (GOOG, GOOGL), Nvidia and Meta Platforms Inc. (META) are the next three companies, which together make up another 18% of the fund’s total assets.
These tech giants have rewarded many long-term investors. Investors should recognize that these five companies make up more than half of the fund’s total returns. That has worked out well this year, as the fund has a 52.6% year-to-date return as of Nov. 10, but it is something investors should know before committing to the ETF.
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Schwab U.S. Large-Cap Growth ETF (SCHG)
The Schwab U.S. Large-Cap Growth ETF aims to track the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. SCHG has a 0.04% expense ratio and $20.6 billion in total assets. The fund was introduced in 2009 and has 250 holdings.
SCHG has a large-growth investing focus and takes a passive approach. The 30-day SEC yield is 0.46%. The top three stocks in the fund are regulars: Apple, Microsoft and Amazon. Apple and Microsoft each make up 13% of the fund’s assets, while Amazon makes up over 6% of assets. However, the fund has a larger position in Alphabet than in Amazon if you count both Alphabet’s Class A and Class C shares, totaling about 7% of assets.
The ETF has achieved a 39.5% year-to-date return on the back of big tech companies. Almost half of the fund’s assets are spread across companies in the technology sector. Communication services is in a distant second place at 12.8% of total assets, with health care and consumer cyclical close behind.
iShares Russell 1000 Growth ETF (IWF)
The iShares Russell 1000 Growth ETF gives investors exposure to U.S. companies that should experience above-average earnings growth. The fund was established in 2000 and has a 30-day SEC yield of 0.62%.
IWF has a larger number of holdings than many funds. The ETF has 443 total holdings, with the top three being Apple, Microsoft and Amazon. Alphabet claims the No. 3 spot if including both Class A and Class C shares. About 45% of the fund’s assets are in the technology sector. The next three sectors are consumer discretionary (15.4%), communications (11.5%) and health care (10.7%).
IWF has a 0.19% expense ratio, which comes to $19 for every $10,000 invested. The fund has rewarded investors with a 32.3% year-to-date return as of Nov. 10.
Global X U.S. Infrastructure Development ETF (PAVE)
The Global X U.S. Infrastructure Development ETF invests in U.S. infrastructure companies that can benefit from increased investments in the industry. Many of the corporations in this fund are involved with the production of raw equipment, heavy equipment, engineering and construction.
PAVE has 98 holdings and a 0.88% 30-day SEC yield. Investors receive distributions twice a year. The fund has a 0.47% expense ratio and $5.1 billion in total assets.
You won’t see any of the Magnificent 7 stocks as top holdings in this fund. This ETF’s top three stocks are Eaton Corp. PLC (ETN) (3.9%), Parker-Hannifin Corp. (PH) (3.8%) and Trane Technologies PLC (TT) (3.7%).
The capital in this fund is also spread out over more companies, which prevents it from having an overweight position in a single stock. That’s in stark contrast to funds that have 50% of assets in just a handful of big tech stocks.
PAVE hasn’t performed as well this year as tech-oriented ETFs. However, the fund still generated a 14.2% year-to-date return for investors as of Nov. 10. Composition-wise, 73.2% of the fund’s total assets are in industrial stocks, and 19.8% are in materials stocks. The remaining capital is spread across the utilities, technology and energy sectors.
Invesco S&P 500 Top 50 ETF (XLG)
The Invesco S&P 500 Top 50 ETF focuses on the top 50 stocks in the S&P 500 based on market capitalization. The fund has outperformed the S&P 500 with its 34.4% year-to-date return and has a 0.2% expense ratio. XLG has a 1.08% 30-day SEC yield.
XLG has $2.8 billion in total assets and places a large emphasis on the information technology sector, as you can imagine. Over 40% of the fund’s assets go into that sector, with the top three holdings being Apple, Microsoft and Amazon. The total capital in Alphabet Class A and Class C shares exceeds the total value of the fund’s position in Amazon.
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Update 11/13/23: This story was previously published at an earlier date and has been updated with new information.
