investing

Kiplinger ETF 20: Our Strategic Funds Shine

These funds focus on specific sectors, or they mirror custom indexes designed to beat pockets of the market.

Lately, stock and bond markets have moved up, down, and up and down again—sometimes in the same week. Given the roller-coaster ride, we decided to check in with the Kiplinger ETF 20, our favorite exchange-traded funds, to find out how they fared over the past 12 months.

In general, large-company U.S. stock funds held up best, small-company funds brought up the rear, and foreign-stock ETFs were in the middle. Because many of our ETFs track traditional indexes, they typically perform in line with their benchmark. IShares Core S&P 500 (symbol, IVV), for instance, managed to gain 1.1% over the past year, matching the return of Standard & Poor’s 500-stock index, despite its 0.04% expense ratio.

Some of the Kip ETF 20’s strategic stock funds shined. These focus on specific sectors, or they mirror custom indexes designed to beat pockets of the market. Ark Innovation (ARKK), for example, is an actively managed fund focused on fast-growing tech firms. Thanks to holdings such as Tesla, up 178% over the past year, Ark beat the S&P 500 with an 11.5% gain over the past 12 months. Our best-performing stock ETF, Invesco S&P 500 Equal Weight Health Care (RYH), posted a 16.3% gain. Health care stocks were the market’s best performers over the past year, followed by information technology.

Among the more-surprising results was the performance of Invesco S&P SmallCap Low Volatility (XSLV). The fund’s return matched that of its benchmark, the S&P SmallCap 600 Low Volatility index. But the ride hasn’t been smooth relative to small-company stocks in general. Bargain-priced shares, which this bogey emphasizes, have had a rougher go of it than their growth-stock counterparts. Still, over long hauls, this ETF beats the broad small-company stock index, the S&P SmallCap 600, with better annualized returns and less volatility.

The Kip ETF 20 has two foreign-stock ETFs. WisdomTree Global ex-US Quality Dividend Growth (DNL) held steady over the past year, with a 0.9% gain, by homing in on growing, high-quality firms that pay dividends. The ETF beat the MSCI EAFE index by 14.4 percentage points. A more traditional index ETF, Vanguard Total International Stock (VXUS), lost 14.3%, held back by emerging-markets stocks, which make up 23% of the fund’s assets.

Bonds cratered in early March. Over eight trading days, the Bloomberg Barclays U.S. Aggregate Bond index plunged 5.7%. The pain was brief; by mid April, the index had regained much of its loss. Two of the Kip 20’s bond ETFs, Pimco Active Bond (LDUR) and SPDR DoubleLine Total Return Tactical (TOTL), are actively managed and aim to beat the Agg index, but they fell short—despite significant holdings in Treasuries.

The recent downturn has been the first big test for many of our Kip 20 ETFs. So far, we’re happy with our lineup.

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