Kip ETF 20: The Best Cheap ETFs You Can Buy

iShares Core S&P 500 ETF

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 1.5%
• Expense ratio: 0.03%, or $3 annually for every $10,000 invested

For broad market exposure, you can't do much better than the iShares Core S&P 500 ETF (IVV, $459.22), which tracks the S&P 500, the ubiquitous barometer of the broad U.S. stock market. 

With an expense ratio of 0.03%, the fund charges one of the lowest annual fees around – making it a solid option for investors seeking out the best cheap ETFs. It holds stakes in the 503 constituents of the S&P 500, ranked by market value (stock price times shares outstanding). The usual suspects top the portfolio: Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Nvidia (NVDA) and Alphabet (GOOGL). 

iShares Core S&P Mid-Cap ETF

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 1.6%
• Expense ratio: 0.05%

There are many midsize-company index funds, but we like the iShares Core S&P Mid-Cap ETF (IJH, $271.23) because it pairs well with its sibling core stock funds, the iShares Core S&P 500 (IVV) and the iShares Core S&P Small-Cap (IJR). 

There's no overlap among the three funds' holdings, which makes it easier to manage any tilt in your portfolio toward company size. Shares in mid-cap stocks beat the S&P 500 over the past month, and many strategists expect that rally to continue. This fund holds shares in 406 companies, with an average market value of $6 billion. Two industrial stocks (the fund's biggest sector) top the portfolio: electrical equipment maker Hubbell (HUBB) and building products firm Builders FirstSource (BLDR). 

iShares Core S&P Small-Cap ETF

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 1.6%
• Expense ratio: 0.06%

Historically, small-cap stocks have outperformed the broad market when the economy starts to recover. Smart investors will buy before the recovery begins. The iShares Core S&P Small-Cap ETF (IJR, $104.24) skews toward profitable firms, giving it a quality tilt. 

That helped in 2022; the fund held up better than the Russell 2000 small-company index. The fund tends to lag when riskier fare is in vogue, but it shines over long hauls. Over the past 10 and 15 years, this cheap ETF has led the Russell 2000. Just over 600 stocks, with an average market value of $1.9 billion, fill the fund. 

iShares MSCI USA ESG Select ETF

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 1.4%
• Expense ratio: 0.25%

Companies that score well on certain environmental, social and corporate governance (ESG) measures get big play in this fund, but the iShares MSCI USA ESG Select ETF (SUSA, $96.87) maintains the profile of a core stock fund, holding shares in a diverse group of 184 large and midsize firms in all sectors, in line with the MSCI USA Index. 

Certain businesses are excluded, including those involved in firearms, nuclear weapons and tobacco. But the fund still devotes 4% of its assets to energy stocks, such as ONEOK (OKE) and Halliburton (HAL). 

Its hefty exposure to tech stocks (30% at last report) was a drag on performance in 2022, as those shares stumbled. But that stake should help this year because the sector has bounced back in recent months. 

Vanguard Total International Stock

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 2.9%
• Expense ratio: 0.07%

After spending years in the shadow of U.S. stocks, some other countries' markets are starting to stand out, including several in Europe (Ireland, Italy and Spain, among others), some emerging markets (Taiwan, Mexico, Greece and Hungary) and even Japan. The Vanguard Total International Stock (VXUS, $58.40) makes it easy to add or build foreign exposure into your portfolio with one of the best cheap ETFs out there. 

The fund shows no favoritism to investing style, company size or geography: It simply holds nearly every stock – just under 7,900 – in developed and emerging markets, weighted by market value. Over the past three years, the fund has returned 7.6% annualized, about average for its peer group – funds that invest in a mix of international stocks with growth or value characteristics.

Schwab U.S. Dividend Equity ETF

• Kip ETF 20 classification: Dividend stock fund
• Dividend yield: 3.6%
• Expense ratio: 0.06%

Like snowflakes, it seems, no two dividend funds are exactly alike. The The Schwab U.S. Dividend Equity ETF (SCHD, $75.62) focuses on high-yielding dividend stocks. 

Only companies that have paid a dividend for at least 10 years and score well on certain financial measures, such as return on equity (a profitability measure) and free cash flow relative to total debt, are included. (Free cash flow is the money left over after expenses to run, maintain and expand the business.) 

The fund's strategy, and its stake in energy stocks, helped in 2022. It lost 3.2% that calendar year, compared with an 18.1% loss in the S&P 500. Over the past 10 years, the fund's 11.7% annualized record ranks among the top 2% of all large value-oriented funds. That lags the S&P 500, but the Schwab U.S. Dividend Equity ETF has been consistently less volatile than the stock benchmark over that period. Broadcom (AVGO), PepsiCo (PEP) and Cisco Systems (CSCO) are top holdings. The fund yields 3.6%.

Vanguard Dividend Appreciation ETF

• Kip ETF 20 classification: Dividend stock fund
• Dividend yield: 1.9%
• Expense ratio: 0.06%

 Companies that consistently raise their payouts are the focus in the Vanguard Dividend Appreciation ETF (VIG, $166.02). The fund includes only those firms that have increased dividends for at least 10 consecutive years. That makes the portfolio more growth-oriented than the other dividend fund in the this list of Kiplinger's favorite cheap ETFs. 

Top holdings in Dividend Appreciation include Microsoft, Apple, Exxon Mobil (XOM) and UnitedHealth Group (UNH). Over the past 10 years, the ETF boasts an 11.6% annualized return. The fund yields 1.9%. 

WisdomTree Global ex-US Quality Dividend Growth Fund

• Kip ETF 20 classification: Dividend stock fund
• Dividend yield: 2.8%
• Expense ratio: 0.42%

The WisdomTree Global ex-US Quality Dividend Growth Fund's (DNL, $36.60) growth tilt, relative to other foreign dividend ETFs, was a drag in 2022, but it's helping now. So far this year, the fund's 11.9% return outpaces the 9.5% gain in the MSCI All Country World ex-USA Index. 

The cheap ETF focuses on high-quality companies with steady profits. Holdings are weighted by payout – the bigger the dividend, the bigger the stock's position in the fund. The portfolio holds mostly large stocks – with a smattering of shares in midsize companies – in developed and emerging countries. The U.K., Taiwan, Switzerland, France and India are the ETF's biggest country exposures. The fund yields 2.0%.

Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 14.2%*
• Expense ratio: 0.59%

The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC, $14.74) aims to capture the rise and fall of commodity prices by investing in futures and other financial instruments. Commodities can be a good portfolio diversifier – the fund gained 19.3% in 2022 as bonds and stocks plummeted in price – and a good inflation hedge, too. 

But 2023 has been a transition year. Gold leads the sector now, as oil prices have retreated, and that in part explains the fund's 7.6% decline so far in 2023. 

Even so, many strategists say this is a blip in a commodity supercycle – a several-years-long bull market, albeit with pauses along the way. Wells Fargo Investment Institute strategists expect a "strong" 2024 that will feature gains in all commodities sectors. As its name suggests, the fund is structured to avoid the troublesome Schedule K-1 tax form, which is required for an investment in a partnership. 

* PBDC pays out a variable annual distribution. The current yield, then, isn't indicative of what an investor should expect year in and year out.

Invesco S&P 500 Equal Weight Health Care ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 0.62%
• Expense ratio: 0.40%

In June, the Invesco S&P 500 Equal Weight Health Care ETF (RSPH, $30.17) adopted a new trading symbol, RSPH, and dropped its old one, RYH. But the fund's strategy is the same: It holds, in equal measures, shares in the 65 healthcare stocks that are members of the S&P 500 Index. 

An equal-weight approach helps even out the influence of the largest companies. UnitedHealth Group, Johnson & Johnson (JNJ) and Eli Lilly (LLY), for instance, would make up 25% of the portfolio if shares were weighted traditionally by market value. 

The approach also means the "growthier" sides of healthcare (think biotechnology) get as much attention as the sector's defensive side (drugmakers). That has helped recently: The fund's 11.9% one-year return beat the S&P 500 healthcare sector index, which ranks companies by market value, by more than six percentage points. 

JPMorgan U.S. Quality Factor ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 1.3%
• Expense ratio: 0.12%

With a recession likely on the way, many strategists are advising investors to stick with high-quality businesses. We sifted through numerous quality-focused ETF choices, but the JPMorgan U.S. Quality Factor ETF (JQUA, $45.57) stood out. 

JQUA boasts the best risk-adjusted returns of the bunch. The index it tracks focuses on 10 quality measures that home in on profitability, financial risk and earnings quality. The fund holds 241 stocks; Nvidia, Meta Platforms (META) and Microsoft are top holdings. 

In 2022, the JPMorgan U.S. Quality Factor ETF held up better than the S&P 500, with a 13.4% loss. It beats the market when conditions get wobbly, and it tends to lag a little in go-go years. But over the past three and five years, the cheap ETF outperformed the S&P 500 and was less volatile, too.   

SPDR S&P Kensho New Economies Composite ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 1.3%
• Expense ratio: 0.20%

Not all innovation happens in the tech sector. The SPDR S&P Kensho New Economies Composite ETF (KOMP, $47.43) casts a wider net by investing in disruptive products and solutions in all sectors of the broad market but one (the exception is real estate). 

It tracks a customized index that employs artificial intelligence to scan company regulatory filings for key terms to pinpoint cutting-edge businesses, such as robotics, clean energy and, well, artificial intelligence, among other things. 

The result is a portfolio of nearly 550 stocks in companies of all sizes in so-called new-economy businesses, including 3D printing, cleantech (products or services that reduce environmental impact), autonomous and electric vehicles, genetic engineering, smart factories, sustainable farming, and space exploration. 

The fund can be volatile, so be prepared for choppy times. Top holdings include Teledyne Technologies (TDY), an industrial conglomerate that makes digital imaging sensors and monitoring instruments for environmental use, among other things; Meta Platforms, formerly Facebook; and PTC (PTC), which makes digital technology that helps companies, including General Electric (GE), HP (HPQ) and Volvo (VLVLY), make more efficient and innovative products. 

Technology Select Sector SPDR Fund

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 0.78%
• Expense ratio: 0.10%

Size matters in the tech world. Dominant, cash-rich players tend to stay on top (think Microsoft), which is why we selected the Technology Select Sector SPDR Fund (XLK, $177.94) – a market-value-weighted ETF – for this sector. 

That decision has worked in our favor so far (we added the fund to the Kip ETF 20 in mid-2022) because for a period earlier this year, a handful of mega-size tech companies led the market. 

Over the past 12 months, the Technology Select Sector SPDR has gained 38.1%, outpacing the 19.6% gain in the S&P 500. Among the best performers are three top holdings, Nvidia (up 179%), Advanced Micro Devices (AMD), up (49%), and Broadcom (82%). 

Vanguard FTSE Europe ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 3.1%
• Expense ratio: 0.11%

Our bet on Europe has taken off. Over the past 12 months, the Vanguard FTSE Europe ETF (VGK, $63.58) has returned 20.8%, outgaining the MSCI EAFE Index, which tracks large companies in foreign developed countries. 

This index fund invests in companies of all sizes based in 16 developed European countries, all for a super-low fee of 0.11% – making it one of the best cheap ETFs around. 

Michael Arone, chief investment strategist for State Street Global Advisors US SPDR business, sees an improving economic backdrop in Europe and better earnings prospects, too. 

Fidelity Total Bond ETF

• Kip ETF 20 classification: Core bond fund
• SEC yield: 5.3%*
• Expense ratio: 0.36%

In each of the past four consecutive calendar years, the actively managed Fidelity Total Bond (FBND, $45.19) has delivered returns that beat at least 70% of its peers (intermediate-term core plus bond funds). And its five-year annualized record outpaced the broad bond market, as measured by the Bloomberg U.S. Aggregate Bond Index. 

The fund holds mostly investment-grade-rated debt (triple-A to triple-B) but it can own up to 20% of assets in bonds rated below investment grade (double-B to triple-C). It currently holds 12% in so-called junk-rated securities. That's more than offset by the fund's nearly 60% exposure to triple-A-rated debt – mostly government bonds and government-guaranteed mortgage-backed securities. The fund yields 5.3%. 

* 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.

Invesco BulletShares 2026 Corporate Bond ETF

• Kip ETF 20 classification: Core bond fund
• SEC yield: 5.3%
• Expense ratio: 0.10%

The Invesco BulletShares 2026 Corporate Bond ETF (BSCQ, $18.97) yields 5.3% (more than the Agg index) and boasts lower volatility than the benchmark, too, allowing investors seeking out the best cheap ETFs to strike a good balance between risk and return. BSCQ focuses on high-quality corporate debt with maturities of one to five years. 

Over the past five years, the ETF has returned 3.1% annualized, ahead of the 0.8% average annual gain in the Agg index. In 2022, it held up better than the benchmark as well, albeit with an 8.3% loss. 

This isn't a typical bond fund; it has a target-date maturity. In 2026, the fund's debt holdings will mature, and on or around December 15 of that year, the fund will close and return remaining assets to shareholders. Given this quirk, we will be watching this fund closely as we get closer to the target year.  

SPDR DoubleLine Total Return Tactical ETF

• Kip ETF 20 classification: Core bond fund
• SEC yield: 5.4%
• Expense ratio: 0.55%

The SPDR DoubleLine Total Return Tactical ETF (TOTL, $40.23), run by DoubleLine's two Jeffs – Jeffrey Gundlach and Jeffrey Sherman – held up better than the Agg bond index in 2022, even with a 12.1% loss. So far this year, the bond ETF leads the bogey, too, with a 3.1% gain. 

The two Jeffs have been more defensive lately, incrementally beefing up stakes in Treasuries and government-backed mortgage bonds and easing up on stakes in other sectors, including emerging-markets debt, high-yield corporate bonds and commercial mortgage-backed securities. The fund yields 5.4%. 

BlackRock Ultra Short-Term Bond ETF

• Kip ETF 20 classification: Opportunistic bond fund
• SEC yield: 5.2%
• Expense ratio: 0.08%

Many strategists favor ultra-short and short-term bond funds these days because they offer greater yields than the broad bond index and experience far less volatility. The actively managed BlackRock Ultra Short-Term Bond ETF (ICSH, $50.35) yields 5.2%. That's better than the 4.8% yield of the Bloomberg U.S. Aggregate Bond index. 

And over the past five years, the managers have delivered a 1.9% annualized return – better than the 0.8% average annual gain in the Agg, with a fraction of the benchmark's volatility. 

Invesco Senior Loan ETF

• Kip ETF 20 classification: Opportunistic bond fund
• SEC yield: 8.3%
• Expense ratio: 0.65%

A rising-rate environment is the best time to own senior loans (also known as bank loans). That's because the coupon rate on these securities adjusts every few months in step with a short-term-bond benchmark.

After the Federal Reserve paused its interest rate hikes in June, it resumed them in July – and signaled that there may be more to come before the end of 2023. So we're keeping the Invesco Senior Loan ETF (BKLN, $20.98) in the family for now. 

The loans in which this bond fund invests are typically issued by banks and financial firms to companies with below-investment-grade credit ratings. Bank loans pay fat yields – this fund currently yields 8.3%. They are good bond portfolio diversifiers, too, because bank loans tend to zig when other bond sectors zag. In 2022, this fund lost 1.7% while the Bloomberg U.S. Aggregate Bond index sank 13.0%.

Vanguard Tax-Exempt Bond ETF

• Kip ETF 20 classification: Opportunistic bond fund
• Dividend yield: 3.4%
• Expense ratio: 0.05%

During the debt-ceiling crisis, municipal bonds, which typically pay interest that's exempt from federal income tax, held up better in price and yield than government and corporate debt. That's a sign that state and local finances are in good shape. State and local government rainy-day funds are at record highs, says Jared Woodard, of BofA Global Research, and municipal revenue-to-debt ratios are at their highest level since 2003. 

In a slowing economy, municipal bonds tend to be more resilient than corporate bonds, too. In other words, it's a good time to consider these tax-exempt bonds. The Vanguard Tax-Exempt Bond ETF (VTEB, $50.18) tracks an index of medium-maturity, investment-grade IOUs. Its current yield, 3.4%, is better than its peers. The fund's taxable-equivalent yield is 4.5% for investors who fall in the 24% federal income tax bracket. 

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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