An exchange-traded fund (ETF) is an investment fund traded on the stock exchange or through a brokerage firm. ETFs cover a number of investment asset classes. These include traditional stock investments, bonds, commodities, foreign markets, currencies, and more. For those who have traded on the stock market before, they provide a familiar feel.
ETFs are traded daily, and their value fluctuates based on demand, how many shares are being created, and how many shares are redeemed. They do so because rather than an investment in a particular individual company, commodity, currency, or bond, an exchange-traded fund is a collection of securities an individual can purchase. Those with knowledge of mutual funds will find the investment principle similar.
Why Choose an ETF?
An ETF is an outstanding way for individuals to feel secure in their investments. While they are still prone to market uncertainty, ETFs offer much greater security than traditional investments. That is because rather than rely on the performance of an individual security you are investing in a group of securities. The more you are able to invest, the greater the chances you will see negative performers offset by positive gainers.
Another benefit of purchasing an ETF is you don't have to do as much research on your investment. While you should always exercise caution in all financial decisions (especially when you make a big purchase), an ETF saves you time by presenting a collective investment strategy. By doing the research for you and selecting what they see as top-performers or emerging securities, ETFs do most of the heavy lifting while allowing you to continue reaping the rewards as if you had done the work yourself.
ETFs also offer lower fees and are much less tax burdensome than their similar counterpart, mutual funds. They also differ in how they are traded, as ETFs are traded just like regular stocks, allowing you full control in the security ordering process. Mutual funds, however, are managed by large companies and do not allow for active trading by an individual outside of the company.
ETFs are also highly adaptable. In the age of technology, many investors pursue investing with an app. As ETFs are actively traded on the market, investors are able to use mobile applications to buy and sell these exchange-traded funds on-demand as they see fit.
With so many benefits to ETFs it is easy to see why they are a popular option in accumulating cash. Don't think you can go in blindly and choose just any ETF, though. There are top performers and metrics you should always be on the lookout for, especially if you are a newcomer to the marketplace.
Key metrics to pay attention to in evaluation of the top income and growth ETFs are expense ratios, turnover, and return percentage.
First Trust Value Line Dividend
First Trust Value Line Dividend ETF (FVD) is one of the more secure ETFs out there. Part of the First Trust Fund Family, it follows investment principles that align with the Value Line Dividend Index. It has a higher-than-average expense ratio at 0.70% but outstanding return percentage that sees its 10-year average at 14.36%.
Begun in 2003, the First Trust Value Line Dividend reports $4.83 billion in net assets and sees itself invest primarily in common stocks.
First Trust Value Line Dividend is a great option for investors looking for a large ETF with value. It trades right around $30, and it is one of the more affordable ETFs on the market. Add in the nice return rate, and you have a quality, secure fund in FVD.
SPDR S&P Emerging Markets Dividend
SPDR S&P Emerging Markets Dividend (EDIV) may not have the net assets of First Trust Value Line Dividend, but it does boast a nice expense ratio, return, and modest turnover.
The fund is listed as having just over $553 million in net assets, and its year-to-date return sits at 6.07%. As with First Trust Value Line Dividend, it is an affordable option for those seeking investment in a large fund. It also trades around the $30 mark.
Where EDIV differs from FVD is it manages fewer assets and has a lower expense ratio of 0.49%. That means less of your money going directly to the fund in terms of fees and overhead costs. Their holdings turnover is at 55%, just above the ideal 50% or less mark.
SPDR S&P Emerging Markets Dividend is a fund that goes in line with the S&P Emerging Markets Dividend Opportunities Index (thus the name). That means investors will be putting their money into a fund focused on emerging common stocks.
Global X SuperDividend REIT ETF
Bargain hunters who want to purchase an ETF will enjoy the Global X SuperDividend REIT ETF (SRET). Trading around the $15 mark, this non-diversified fund focuses on investing in REITs. For those unfamiliar, REIT stands for real estate investment trust. A singular REIT is a company that deals with value driven real estate.
Global X SuperDividend REIT is categorized as a Real Estate ETF and reports $146.29 million in net assets. It has a year-to-date return of 11.09% and a slightly-above-average expense ratio of 0.59% (the real estate category average sits at 0.37%). This is offset, however, by a lower turnover percentage. The ETF posts a 41.61% holdings turnover, much lower than the category average of 2,194%.
This is a low risk fund with great performance at a low cost. For those on a budget but wanting to get into the ETF marketplace, SRET may be the best option for you.
Schwab US Dividend Equity
Schwab US Dividend Equity ETF (SCHD) is a Large Value ETF, and rightly so. It manages more than $8 billion in Net Assets, making it one of the larger ETFs on the market. The Large Value ETF is also one of the more secure and top performing.
Though its year-to-date return sits at 6.77%, the Schwab US Dividend Equity ETF boasts an impressive and super-low expense ratio or 0.07%. Compare that to the category average of 0.34%, and you can see why those with big pocketbooks are eager to invest in this ETF. The price hovers around $50, making it a modest investment.
Those seeking to make big gains with the fund can do so with large investments due to the low expense ratio. Though the return percentage is lower than some of the other Large Value ETFs on the market, Schwab US Dividend Equity's expense ratio means that more of your money goes directly back to you.
The ETF is also a great investment for those seeking long-term investment strategies. With just a 23% Holdings Turnover, the ETF focuses on the Dow Jones U.S. Dividend Index and offers primarily common stocks.
WisdomTree US LargeCap Dividend
WisdomTree US LargeCap Dividend (DLN) is another Large Value ETF and is more expensive than those other on this list. It has just under $2 billion in net assets and follows the WisdowmTree U.S. LargeCap Dividend Index. This makes it a non-diversified ETF that will focus on dividend-paying markets.
Those wanting to invest their money over a long period of time may want to consider this fund as a primary option, especially if you have the money to invest heavily. While the year-to-date of WisdomTree US LargeCap Dividend stands at 7.11%, they have posted an impressive 14.24% 10 year return. That is much better than their category average of 6.55% and goes to show why this fund trades around the $90 mark. That is, however, an impressive surge of growth after the ETF hovered in the $75 range for much of 2015-2017.
Perhaps this is because of their low Holdings Turnover of 10% and ability to produce results over the long-term. Combine that with an expense ratio of 0.28%, and you can see why the WisdomTree US LargeCap Dividend is valued for its performance and low risk.
SPDR Russell 1000 Low Vol Focus
The SPDR Russell 1000 Low Vol Focus ETF (ONEV) is the only Mid-Cap Blend ETF on this list. It holds more than $461 million in Net Assets and a year-to-date return of 9.38%. The fund currently trades around $73 per share, has a low expense ratio of 0.20%, and a low holdings turnover of 37%.
Those are all impressive numbers for an ETF following the Russell 1000 Low Volatility Focused Factor Index. This index tracks and follows the performance of large-capitalization U.S. equity securities. That's why those who invest in the SPDR Russell 1000 Low Vol Focus will see their investments align closely with this index.
The fund is relatively new, too. It has been in operation since just 2016 and posted two great years to begin operation, but it did have a down year in 2018. Despite this, it is still considered a low risk fund with high potential to bring about results for investors.
ETFs offer outstanding opportunities for those wanting to invest their money wisely. If you are into responsible finances (take, for example, those who know how to partner with the right bank) then you should always consider adding an ETF to your financial portfolio.
With ETFs of all shapes, sizes, categories, and strategies, you can feel confident there is an ETF investment strategy out there for you.