Navigating The Universe Of ETFs
Kiplinger's Personal Finance|September 2019

Use the Kiplinger ETF 20 to build a solid core for your portfolio. Our list also includes funds to explore satellite strategies.

Nellie S. Huang

Fly Me to the Moon is a love song, the Frank Sinatra version of which was actually played on the moon by Apollo 11 astronauts. But these days, it might as well be the anthem for investors in exchange-traded funds. Assets in ETFs are growing at an astronomical rate, closing in on $4 trillion in the U.S. That’s still less than the $18 trillion that sits in U.S. mutual funds. But it’s clear that investors are now choosing ETFs over mutual funds. The ETF share of total assets at investment firms has grown to nearly 16% from 8% at the start of the decade, while mutual funds have lost market share. // That’s in part because ETFs are agile. These funds, which are baskets of assets that trade like stocks, are typically index-based and, therefore, low-cost. They offer an efficient way to invest in a broad swath of the market or to zero in on a targeted area. As ETFs evolve, investors are getting smarter about how they use ETFs in their portfolios. “After a decade of market gains, ETFs now play a unique role for investors as the foundation of a portfolio and also as vehicles that enable investors to be nimble,” says Kari Droller, who oversees third-party mutual funds and ETFs at Charles Schwab. // According to a recent vestors are using ETFs to fortify the core of their portfolios. But they’re also using these funds to build satellite holdings that revolve around the core. These bets are more strategic: Short term bond ETFs offer ballast in an uncertain interest rate environment; dividend-stock funds provide income and stability; a health care stock ETF can goose growth.

We follow the same approach with the Kiplinger ETF 20, the list of our favorite ETFs. The roster is diverse. Some are core holdings, and others might satisfy specific needs, such as ballast, income or growth. Some are traditional index funds, which means they track benchmarks that weight holdings by market value (the bigger a stock’s market capitalization, the bigger its position in the index and the ETF portfolio). Others are so-called smart-beta ETFs, which typically track a designer index that is built to do better than a particular pocket of the market. And some of our ETF picks are actively managed. Not all of the Kip ETF 20 are going to be right for you, but the list can come in handy as you build, or round out, your portfolio.

The stock market has had a topsyturvy ride over the past 12 months, but we’re pleased with the performance of our Kip ETF 20 stock funds. Two of our smart-beta ETFs beat Standard & Poor’s 500-stock index: VANGUARD DIVIDEND APPRECIATION and SCHWAB US DIVIDEND EQUITY.

The traditional index ETFs did their job, too. They performed in line with their benchmark, minus expenses. Over the past 12 months, for instance, ISHARES CORE S&P 500, with an expense ratio of 0.04%, returned 9.91%, slightly ahead of the S&P 500’s 9.89% gain.

Our fixed-income ETFs, for the most part, came through, too. Two of the intermediate-term core bond funds are actively managed, but only one—PIMCO ACTIVE BOND—beat the Bloomberg Barclays U.S. Aggregate Bond index. SPDR DOUBLE LINE TOTAL RETURN TACTICAL trailed the Agg by 0.6 percentage point.

We’re making some changes to the roster this year. Some of the newcomers are meant to cushion your portfolio in a market downturn. One new entrant is simply a better strategy for investing in small-company stocks; another is a way to buy into some of the most innovative trends of our time. Read on for details on which ETFs are moving in, and which ones are moving out to make room. Also, we share our tips for trading ETFs in the box below. You’ll find four sample portfolios using ETF 20 funds on page 22. Returns and data are through July 12.

SWITCHING GEARS

What’s in: ISHARES EDGE MSCI MIN VOL USA ETF, an ETF that holds up well in rocky markets (Min Vol stands for minimum volatility). The ETF tilts toward stocks of steadier large and midsize U.S. companies. “By reducing overall volatility, the fund delivers market-like returns with lower risk,” says Holly Framsted, head of smart-beta ETFs for BlackRock’s iShares. Over the past five years, iShares Edge MSCI Min Vol was 22% less jumpy than the S&P 500, and it beat the benchmark by an average of 2.2 percentage points per year with a 13.4% annualized return.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM KIPLINGER'S PERSONAL FINANCEView All

WORK FROM HOME— Wherever That Is

The pandemic has made it easier to work from a distance, but some far-flung workers have to follow special rules for taxes, health care and insurance.

10+ mins read
Kiplinger's Personal Finance
February 2021

Tame the Cost of Pet Care

If you’ve added a dog or cat to your family, consider pet insurance to manage routine and unexpected veterinary bills.

8 mins read
Kiplinger's Personal Finance
February 2021

Invest in These Great Places to Work

These companies do well by their workers, which can translate into gains for investors.

9 mins read
Kiplinger's Personal Finance
February 2021

SAVE MONEY WITH AN ELECTRIC CAR

Although some are still a pricey luxury, we found EVs that are fun, affordable and eligible for tax incentives.

10 mins read
Kiplinger's Personal Finance
February 2021

The Right Robo Adviser for You

We sort through the evolving world of automated investment services, including some that offer a human touch.

10+ mins read
Kiplinger's Personal Finance
February 2021

Give Your Child Some Credit

Naming your child as an authorized user on your credit card can be a great way to set them up with a healthy credit report.

2 mins read
Kiplinger's Personal Finance
February 2021

Get Your Retirement Back on Course

Even the most diligent savers can encounter obstacles on the road to retirement, but the past few months have delivered unprecedented hazards. We’ll help you come up with a recovery plan.

10+ mins read
Kiplinger's Personal Finance
February 2021

FEDERAL DEBT : A HEAVY LOAD

The debt continues to grow, but record-low interest rates could ease the long-term damage.

3 mins read
Kiplinger's Personal Finance
February 2021

Best 401(k) Funds From Fidelity

We rate the most popular actively managed offerings for retirement accounts.

6 mins read
Kiplinger's Personal Finance
February 2021

WHERE TO INVEST IN 2021

With the election in the rearview mirror, investors can turn their full attention to the economic recovery and progress on the pandemic.

10+ mins read
Kiplinger's Personal Finance
January 2021
RELATED STORIES

What Really Is EPF & ETF?

As young adults entering the workforce, terms like Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF) may often fly over our heads. We stumble forward in our professional lives with merely a vague understanding of what they are and all it entails. What’s at the forefront of our minds is our total take-home pay, after all, deductions are made, forgetting that in a few years we will accumulate a tidy little fund.

4 mins read
Cosmopolitan Sri Lanka
July 2018

I Can Haz Make You Money?

 How I built an ETF based on cats and made a paper fortune “The No. 1 thing is that it lacks an economic foundation”

5 mins read
Bloomberg Businessweek
June 5 - June 11, 2017

Build A Robust Portfolio

A guiding principle should be that the potential for returns needs to outweigh the likelihood of losses

8 mins read
Money Magazine Australia
July 2020

Central Banks, Fis Hold 34,000 Tons Of Gold As Reserve

Gold plays a prominent role in reserve asset management. Safety and liquidity are paramount for reserve managers globally:

3 mins read
Banking Frontiers
April 2020

Everything You Need To Know About ETF Investing

There is a tectonic shift happening in the asset management industry, all over the world.

6 mins read
Dalal Street Investment Journal
January 20, 2020 - February 02, 2020

How Liquidity In ETF Is Different From Liquidity In Stocks

The equity markets saw a good recovery in the month of October and early November.

5 mins read
Dalal Street Investment Journal
November 25 - December 8, 2019

Does Equity-Dedicated Mutual Fund Investment Beat Inflation In The Long Run?

Equity dedicated mutual funds find popular favour among investors while building and managing their investment portfolios.

5 mins read
Dalal Street Investment Journal
November 11 - 25, 2019

A Millennial's Guide To Retirement

Imagine this: Two days after your 60th birthday, you sign off on the paperwork and hand over your company to your only daughter.

6 mins read
Cosmopolitan Sri Lanka
September 2019