The word “cheap” can have a decidedly negative connotation. It usually means low quality or poor workmanship. In other words, if something’s cheap it’s probably not worth buying. In the world of investing, however, cheap has a different, more positive meaning.
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On Wall Street, cheap means value. People looking for cheap investments are looking for undervalued securities that are ready to explode to the upside when the broad market realizes the unseen potential.
But how does an investor know which investments are cheap and which are overpriced? After all, determining the inherent value of a stock, bond or mutual fund is a tricky business, and no one wants to make a mistake when hard-earned money is on the line.
That’s where exchange-traded funds, or ETFs, come in. ETFs are professionally managed, meaning security selection is determined by a skilled and experienced portfolio manager or management team. These asset managers have tremendous resources and vast amounts of technology and market data at their disposal. They’re experts at identifying discounted securities and determining when to buy. Even passively managed, index ETFs are based on benchmarks and criteria designed and administered by respected asset management or research firms.
In short, if you are looking for a high-quality but undervalued investment — one with maximum growth potential — it might be best to buy a value ETF or an ETF that invests in an out-of-favor sector. This list of seven cheap ETFs is a great place to jumpstart your research:
| ETF | Expense Ratio | Forward Dividend Yield* |
| iShares 20+ Year Treasury Bond ETF (ticker: TLT) | 0.15% | 4.3% |
| Vanguard Small-Cap Value Index Fund ETF Shares (VBR) | 0.07% | 1.2% |
| Vanguard Energy Index Fund ETF Shares (VDE) | 0.10% | 3.2% |
| Schwab U.S. REIT ETF (SCHH) | 0.07% | 3.2% |
| The Health Care Select Sector SPDR Fund (XLV) | 0.09% | 1.7% |
| Fidelity MSCI Consumer Discretionary Index ETF (FDIS) | 0.08% | 0.7% |
| Invesco Financial Preferred ETF (PGF) | 0.56% | 6.2% |
*As of Jan. 7 close.
iShares 20+ Year Treasury Bond ETF (TLT)
Long-term government bonds are not behaving as expected. In 2023, when the U.S. Federal Reserve was increasing interest rates, the consensus on Wall Street was that when interest rates finally fell, long-term bond yields would follow and bond funds would rise. That hasn’t happened.
When the Fed began lowering the fed funds rate in January 2024, the yield on a 20-year Treasury bond was around 3.9%. Today, after a series of cuts, the yield on a 20-year is 4.9%. This uncharacteristic behavior by the bond market may have created an unprecedented opportunity in bond funds like TLT.
TLT is a $50 billion ETF based on the ICE U.S. Treasury 20+ Bond Index. This fund invests in Treasury securities with at least 20 years remaining until maturity. This ETF has an expense ratio of 0.15% and a current yield of 4.3%.
TLT is down about 10% over the previous 12 months, but that’s not due to the poor quality of the underlying investments — the interest and principal of all the bonds in the portfolio are guaranteed by the U.S. government. The problem has been uncertainty about the inflation rate, the economic outlook, fiscal and monetary policy, and other global influences. If and when investors gain clarity about the markets and the economy, the bond market should normalize and TLT should perform much better.
Vanguard Small-Cap Value Index Fund ETF Shares (VBR)
VBR tracks the CRSP US Small Cap Value Index. The fund has a low expense ratio of just 0.07%, which is typical of Vanguard index ETFs.
The index that VBR mirrors was designed to reflect the broad universe of small-cap stocks that display superior value characteristics. That means Wall Street feels they are undervalued compared to peers in related industries and the market more generally.
Most investors know that small caps have lagged behind large caps for an extended period. That circumstance can’t last forever, and some analysts believe that smaller stocks are poised for exceptional growth. VBR merges value investing with small-cap stock investing. It could be a very timely investment for people looking for a cheap ETF to buy now.
VBR has a dividend yield of 1.2%.
[READ: 7 Best Income ETFs to Buy in 2025]
Vanguard Energy Index Fund ETF Shares (VDE)
Global energy demand is strong and growing fast. Yet the energy sector has lagged behind the other sectors and the broader market. This may mean that energy index funds like VDE are cheap right now.
VDE tracks the performance of the Spliced U.S. Investable Market Energy 20/50 Index. That benchmark was designed to accurately measure the general return of stocks in the domestic energy sector. This is a full replication index fund with 112 holdings. The fund owns U.S. stocks involved in the exploration, production, storage and transportation of oil, natural gas, coal and — to a smaller extent — renewable energy products.
Potential investors should be aware that Vanguard considers VDE an aggressive fund. This means they feel that the ETF may be subject to above-average fluctuations of its share price.
The dividend yield of VDE is 3.2%, and it has an expense ratio of 0.1%.
Schwab U.S. REIT ETF (SCHH)
Long-term interest rates are higher than many real estate investors expected they would be at this stage in the rate-cutting cycle. This higher-for-longer scenario has hampered the commercial real estate sector and created significant value in that asset class. In other words, real estate stocks and real estate ETFs may be very cheap right now.
SCHH has over $7 billion in net assets and, with an expense ratio of just 0.07%, it’s a very cost-effective way to gain exposure to real estate stocks.
The fund follows the Dow Jones Equity All REIT Index. That benchmark is considered a reliable representation of the real estate investment trust (REIT) market. With 119 holdings, SCHH provides investors with broad diversification among classes of real estate, types of REITs and geographic regions. This fund makes an excellent core real estate holding, even if you don’t think that sector is cheap.
The fund has a current dividend yield of 3.2%.
The Health Care Select Sector SPDR Fund (XLV)
When you look at fundamental factors — especially price-to-earnings ratios — compared to historical averages, health care stocks look relatively cheap today. Regulatory uncertainty, weaker-than-expected revenue generation and general underperformance have all contributed to the relative undervaluation of this sector.
XLV is a big fund with over $36 billion in net assets. The fund reflects the performance of the health care sector by investing in pharmaceutical companies, biotechnology firms, health care equipment manufacturers, hospital operating companies, health care technology companies and related stocks.
This fund allows investors to make a strategic investment in an important segment of the U.S. and global economy. The fund provides a current dividend yield of 1.7% and has an expense ratio of 0.09%.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS)
Since the end of the COVID-19 pandemic, the consumer discretionary sector has faced both short-term and long-term headwinds, which have put downward pressure on stock valuations. The most prominent issues have been high inflation, a stubbornly tight labor market and persistent supply chain disruptions.
FDIS is a $2 billion, passively managed index fund specifically designed to provide exposure to potentially cheap stocks in that sector. For example, about 3.7% of the fund’s assets are invested in McDonald’s Corp. (MCD). MCD drastically underperformed in 2024, but it has good management and a plan to turn things around. When economic uncertainties clear, MCD and other stocks held in the FDIS portfolio should rebound and drive the fund’s price higher.
FDIS follows the MSCI USA IMI Consumer Discretionary Index. It invests in large-, mid- and small-cap stocks and carries an expense ratio of 0.08%. Additionally, the fund has a current yield of 0.7%.
Invesco Financial Preferred ETF (PGF)
The same yield curve anomalies that have made long-term bond funds like TLT cheap have affected other fixed-income funds in the same way. Preferred stocks are not bonds, but they are effectively fixed-income securities that many Wall Street pros say are undervalued.
PGF mirrors the ICE Exchange-Listed Fixed Rate Financial Preferred Securities Index, which tracks fixed-rate preferred stocks issued by financial companies like banks, brokers and insurance companies. If the yield curve flattens — that is the spread between long-term rates and short-term rates narrows — preferred stocks should benefit, and the price of PGF should rise accordingly.
PGF has $859 million in assets, boasts an attractive dividend yield of 6.2% and carries an expense ratio of 0.56%.
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7 Cheap ETFs to Buy Today originally appeared on usnews.com
Update 01/08/25: This story was previously published at an earlier date and has been updated with new information.
