Kip ETF 20: The Best Cheap ETFs You Can Buy
Build a solid core for your portfolio and explore new opportunities with our favorite low-cost exchange-traded funds (ETFs).
The past year has been huge for exchange-traded funds (ETFs) – those increasingly popular low-cost securities that hold baskets of assets and trade like stocks.
And it's against this backdrop that we review the Kiplinger ETF 20, which is our list of our favorite ETFs.
Assets in U.S.-listed ETFs reached a record $6.3 trillion at the end of May 2021, up from $4.3 trillion around this same time last year. ETF inflows have recently surged past $500 billion, eclipsing inflows for the entirety of 2020 – itself a record year for inflows. Helping fuel the surge in ETF buying has been the elimination of commissions to trade shares in ETFs (and stocks, too), as well as the market's roaring recovery.
But as assets in ETFs swell, so too do the number of products investors must sift through. If you don't have time to rifle through literally thousands of funds, we can help simplify your search with the Kiplinger ETF 20: our favorite exchange-traded funds. This list of equity and bond ETFs alike can help you build a core portfolio, as well as make tactical plays depending on which way the market winds are blowing.
Read on for more analysis of our Kip ETF 20 picks, which allow investors to tackle various strategies at a low cost.
Data is as of July 28, 2021. Dow Jones, fund companies, Morningstar, MSCI, YCharts. Yields represent the trailing 12-month yield, which is a standard measure for equity funds.
iShares Core S&P 500 ETF
- Kip ETF 20 classification: Core stock fund
- Dividend yield: 1.3%
- Expense ratio: 0.03%, or $3 annually for every $10,000 invested
As a portfolio mainstay, you can't go wrong with iShares Core S&P 500 ETF (IVV, $441), which tracks the S&P 500. The fund holds all 505 stocks in the benchmark. That represents 80% of the U.S. stock market, giving you broad exposure.
Most of the companies, such as Apple (AAPL) and Microsoft (MSFT), are giant-size; portfolio holdings have an average market value of $200 billion.
Information technology, financial services and healthcare sectors make up half of the portfolio, in step with the benchmark.
iShares Core S&P Mid-Cap ETF
- Kip ETF 20 classification: Core stock fund
- Dividend yield: 1.1%
- Expense ratio: 0.05%
iShares Core S&P Mid-Cap ETF (IJH, $267) tracks midsize companies (firms with a market value between $2.4 billion and $8.2 billion at the time of inclusion, which represent 7% of the U.S. stock market).
And midsize companies are on a roll. IJH has delivered a 44% total return (price plus dividends) over the past 12 months, which beat the large-cap S&P 500's 38%.
We like to match up this fund and iShares Core S&P Small-Cap with iShares Core S&P 500, because there's no overlap among the portfolios.
iShares Core S&P Small-Cap ETF
- Kip ETF 20 classification: Core stock fund
- Dividend yield: 0.9%
- Expense ratio: 0.06%
Small-cap stocks have been the place to be of late. The iShares Core S&P Small-Cap ETF (IJR, $109) has returned 55% over the past 12 months, and many market watchers expect the run to continue.
IJR offers exposure to the smallest firms in the U.S. – companies with a market value between $600 million and $2.4 billion at the time of inclusion, which make up roughly 3% of the U.S. stock market.
iShares MSCI USA ESG Select ETF
- Kip ETF 20 classification: Core stock fund
- Dividend yield: 1.0%
- Expense ratio: 0.25%
There's a dizzying array of ESG U.S. stock funds available these days, and it can be hard to parse their differences. But iShares MSCI USA ESG Select ETF (SUSA, $98) is still our favorite.
SUSA holds stocks in more than 200 companies, ranging from midsize firms to mega-caps, that are mindful of their environmental impact; treat customers, employees and their community well; and boast a diverse pool of ethical managers who consistently act in the best interests of shareholders. These characteristics, among others, define high-quality companies that should perform better over time.
So far, so good, for MSCI USA ESG Select ETF. It held up much better than the S&P 500 and its ESG US stock fund peers (large-company funds that invest in both growth and value stocks) in the pandemic selloff. And it beat the S&P 500 and its typical peer fund over the past one, three and five years.
It's a standout.
Vanguard Total International Stock
- Kip ETF 20 classification: Core stock fund
- Dividend yield: 2.4%
- Expense ratio: 0.08%
Vanguard Total International Stock ETF (VXUS, $65) makes investing abroad easy. For less than $70, you can own a small piece of nearly every foreign stock in the world and pay an ultralow annual expense ratio.
International investing has played bridesmaid to the bride – U.S. stocks – for nearly a decade. But it's important to consistently maintain some foreign-stock exposure. And recent returns – VXUS has gained 28% over the past 12 months – have been quite tidy.
Schwab U.S. Dividend Equity ETF
- Kip ETF 20 classification: Dividend stock fund
- Dividend yield: 2.9%
- Expense ratio: 0.06%
Companies in Schwab U.S. Dividend Equity ETF (SCHD, $76) have to check a lot of boxes. They must pay high dividends, have at least a 10-year history of payouts, and compare well relative to peers on a variety of measures, including their ratio of cash flow to debt, as well as their dividend yield, dividend growth and profitability.
The end result is a portfolio of 100 stocks, weighted by market value, in mostly large, value-priced companies. (Real estate investment trusts are excluded.)
Three health care companies – Merck (MRK), Amgen (AMGN) and Pfizer (PFE) – stand among the fund's top 10 holdings, as do BlackRock (BLK), Home Depot (HD) and Texas Instruments (TXN). The last two are members of the Kiplinger Dividend 15, our favorite dividend stocks.
Vanguard Dividend Appreciation ETF
- Kip ETF 20 classification: Dividend stock fund
- Dividend yield: 1.6%
- Expense ratio: 0.06%
Companies with at least 10 years of consistent dividend increases are the focus here.
At the start of October, Vanguard Dividend Appreciation ETF (VIG, $159) will track a new index, the S&P Dividend Growers index, instead of the Nasdaq US Dividend Achievers Select index. The difference is minimal. High-dividend yielders are still removed, for instance. But according to Morningstar analyst Lan Anh Tran, the S&P index has additional screens to address financial stability.
At last report, the fund's top holdings – Microsoft, JPMorgan Chase (JPM) and Johnson & Johnson (JNJ) – matched those of the S&P Dividend Growers index.
WisdomTree Global ex-US Quality Dividend Growth Fund
- Kip ETF 20 classification: Dividend stock fund
- Dividend yield: 1.8%
- Expense ratio: 0.58%
Dividend payers were a bit of a downer last year because many companies suspended or trimmed payouts during the global pandemic – and some have been slow to reinstate them.
But however slow the economic recovery is in different pockets of the world, it is still helping WisdomTree Global ex-US Quality Dividend Growth Fund (DNL, $42), which focuses on high-quality foreign dividend payers with dependable profits. Holdings are weighted by payout – the bigger the dividend, the bigger the stock's share of the fund's assets. What's more, the fund's record over the past three years beat the MSCI EAFE – with less volatility, too.
Rio Tinto (RIO), ASML Holding (ASML) and Taiwan Semiconductor Manufacturing (TSM) were top holdings at last report.
ARK Innovation ETF
- Kip ETF 20 classification: Strategic stock fund
- Dividend yield: 0.0%
- Expense ratio: 0.75%
Actively managed ARK Innovation ETF (ARKK, $121) has gotten a lot of attention in recent months, first for its whopping 153% gain in 2020, then for its sharp reversal this year. The fund has lost 25% since it peaked in February, thanks in part to big price drops in Tesla (TSLA), Teladoc Health (TDOC) and Zoom Video Communications (ZM) – all top holdings.
But we still stand behind manager Catherine Wood and the fund's mission to invest in the firm's best ideas in long-term growth areas – genomics, automation, next-gen internet and financial technology.
Expect a bumpy ride. Despite dismal returns since the start of 2021, the fund's five-year annualized gain was a chart-topper. It beat all but one tech stock fund – its sibling ARK Next Generation Internet ETF (ARKW) – as well as every diversified U.S. stock fund or ETF.
Fidelity MSCI Industrials Index ETF
- Kip ETF 20 classification: Strategic stock fund
- Dividend yield: 1.1%
- Expense ratio: 0.08%
The U.S. economy is booming, which makes it a good time to hold industrial stocks. Companies in this sector typically include construction equipment businesses, factory machinery makers, and aerospace and transportation firms, all of which do well in the early days of an economic recovery.
To wit: Over the past 12 months, Fidelity MSCI Industrials Index ETF (FIDU, $54) has returned 47% – well ahead of the broad market's 38% return.
Invesco S&P 500 Equal Weight Financials ETF
- Kip ETF 20 classification: Strategic stock fund
- Dividend yield: 1.6%
- Expense ratio: 0.40%
We went back to the drawing board to find a diversified financial ETF that would offer investors another way to play the economic recovery but could still stand steady as a long-term holding.
Invesco S&P 500 Equal Weight Financials ETF (RYF, $59) fits the bill.
RYF spreads assets equally among 65 financial stocks – all of them S&P 500 constituents – in a variety of financial industries, including insurance, banks, capital markets, consumer finance and diversified financial services.
Over the past one, three, five and 10 years, the ETF has outperformed the typical financial sector stock fund, with less volatility in each of those periods. That packs a good punch.
Invesco S&P 500 Equal Weight Health Care ETF
- Kip ETF 20 classification: Strategic stock fund
- Dividend yield: 0.4%
- Expense ratio: 0.40%
Invesco S&P 500 Equal Weight Health Care ETF (RYH, $305) invests in all of the healthcare stocks in the S&P 500 index – 64 at last count – in equal shares of the fund's assets. (The fund rebalances quarterly.)
This equal-weight construction has been a boon lately for the Invesco ETF, because shares in smaller companies have outperformed their large counterparts. And it explains why RYH's 30% return over the past 12 months has surpassed that of the market-value-weighted Health Care Select Sector index, which climbed 26%.
Invesco WilderHill Clean Energy ETF
- Kip ETF 20 classification: Strategic stock fund
- Dividend yield: 0.7%
- Expense ratio: 0.70%
Clean-energy stocks are a long-term bet on the future. But sometimes bets on far-away outcomes can get ahead of themselves. That's a little of what happened with renewable-energy stocks last year – and why the shares are down this year.
Invesco WilderHill Clean Energy ETF (PBW, $83) gained a mind-blowing 205% in 2020, but since the start of this year it has slipped 23%. We aren't discouraged.
We view this as a better time to get in than, say, in late 2020. Just buckle up for the ride.
Vanguard FTSE Europe ETF
- Kip ETF 20 classification: Strategic stock fund
- Dividend yield: 2.5%
- Expense ratio: 0.08%
A strong summer recovery is expected in Europe, which makes Vanguard FTSE Europe ETF (VGK, $68) a timely investment. Senior economist Marion Amiot, of S&P Global, forecasts 4.4% gross domestic product growth in the eurozone this year and 4.5% in 2022.
We like that VGK tracks a FTSE index that includes companies of all sizes – stocks in smaller companies tend to bounce higher in the early stages of a recovery – in 16 countries. And its top three sectors, financial services, industrials and consumer-cyclical companies, tend to be big early-economic-recovery plays, too.
Over the past five years, the fund's 10.6% annualized return beat the typical Europe stock fund.
Fidelity Total Bond ETF
- Kip ETF 20 classification: Core bond fund
- SEC yield: 1.5%*
- Expense ratio: 0.36%
The team that runs actively managed Fidelity Total Bond ETF (FBND, $54), which has leeway to invest in a wide variety of bonds and up to 30% of assets in high-yield debt, is led by Ford O'Neil and Celso Munoz.
They have a "gradual contrarian" investment approach, says O'Neil, which led them to load up on out-of-favor high-yield bonds and emerging-markets debt during the bond selloff in early 2020. Those bond sectors rallied in late 2020 and early 2021. Keeping the portfolio lighter than its peers did in Treasuries, high-quality corporate bonds and mortgage-backed IOUs helped, too.
FBND gained 9.4% in 2020. Its three-year annualized return of 6.6% beats all but 25% of its peers.
* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
SPDR DoubleLine Total Return Tactical ETF
- Kip ETF 20 classification: Core bond fund
- SEC yield: 2.6%
- Expense ratio: 0.55%
The DoubleLine managers behind actively managed SPDR DoubleLine Total Return Tactical ETF (TOTL, $49) – Jeffrey Gundlach and Jeffrey Sherman – are practically fixed-income royalty.
In this fund, they have latitude to invest in a wide variety of debt of any credit quality. But they tend to stick to what they know best – mortgage-backed securities – even in rough markets. Those kinds of loans, residential and commercial, made up more than half of the fund's assets, which goes some way to explain why the fund's recent returns have lagged those of its peers (intermediate-term core plus bond funds).
In 2020, its 3.6% return trailed 93% of its category. But this fund held up much better than its peers during the drawdown in bond markets in March 2020 – and so far in 2021, too.
We think TOTL is misunderstood by critics. It's not a "knock the ball out of the park" kind of fund; it's slow and steady, with super-low volatility.
Vanguard Intermediate-Term Bond ETF
- Kip ETF 20 classification: Core bond fund
- SEC yield: 2.1%
- Expense ratio: 0.05%
Vanguard Intermediate-Term Bond ETF (BIV, $91) targets investment-grade debt with five- to 10-year maturities. It holds more than 56% of assets in government bonds and 43% in corporate IOUs.
BIV takes on a little more credit risk than its intermediate-term core bond fund peers: The fund holds about 25% of assets in triple-B debt, the lowest grade in the high-quality-credit world. (The typical core bond fund holds 19% in triple-B debt.) That lifts its yield, however, to 2.1%, which is higher than the average yield among intermediate-term core bond funds.
Its 0.2% return over the past year isn't exactly explosive, but it does top the Bloomberg Barclays U.S. Aggregate Bond Index.
BlackRock Ultra Short-Term Bond ETF
- Kip ETF 20 classification: Opportunistic bond fund
- SEC yield: 0.3%
- Expense ratio: 0.08%
In late 2020, BlackRock adopted a new branding system to differentiate between its passive and active ETFs. Its index funds will be called "iShares" ETFs; its active funds, "BlackRock."
That's why BlackRock Ultra Short-Term Bond ETF (ICSH, $51), a Kip ETF 20 veteran, has a new name.
ICSH is managed by BlackRock's Cash Management Team to provide income by investing in a range of short-term, investment-grade fixed- and floating-rate debt and money market instruments. But this fund is not a money market fund; it takes on a little more risk. It also has returned 0.4% over the past 12 months.
Invesco Senior Loan ETF
- Kip ETF 20 classification: Opportunistic bond fund
- SEC yield: 2.7%
- Expense ratio: 0.65%
With an economic recovery under way and a higher likelihood of rising short-term interest rates, the bond sector that Invesco Senior Loan ETF (BKLN, $22) invests in is having its day in the sun.
Senior loans pay an interest rate that adjusts every few months in step with a short-term-bond benchmark. When yields rise, most bond prices fall. But senior loans, often called floating-rate loans, retain their value.
Over the past 12 months, this ETF has returned 5.2%. That's 2.9 percentage points behind its peers but ahead of the broad bond market, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, by more than six percentage points.
Vanguard Total International Bond ETF
- Kip ETF 20 classification: Opportunistic bond fund
- Dividend yield: 0.9%
- Expense ratio: 0.08%
It's difficult to justify investing in international bonds, especially with negative interest rates still prevalent in many foreign nations. Even so, diversification benefits can trump yield, and putting even a small stake of your bond portfolio in foreign debt can dampen risk and boost returns.
Last year, for instance, Vanguard Total International Bond ETF (BNDX, $58), which tracks a global aggregate bond index from Bloomberg Barclays, experienced less volatility than the Bloomberg Barclays U.S. Aggregate Bond index.
And despite a slim gain of 0.6% over the past 12 months, the ETF outpaced the Agg, too.
