Top 10 Best and Popular ETF for Investment Exchange Traded Fund

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Introduction

In my previous articles about top mutual funds and Exchange Traded Funds (ETF), I have briefly mentioned about investing in ETF. Two main reasons to invest in ETF are liquidity and tax-efficiency. ETFs are traded like stock. You can trade any ETFs (buy ETF or sell ETF) during the trading day (pre-market, market and post-market). ETF is very liquid compare to mutual fund. Mutual funds can only be purchased by end of the day. ETFs are very tax efficient since ETFs doesn’t distribute any capital gain for its owner. Typical mutual fund will have distribution of capital gain near end of the year or mid of year. Without this frequent trading activity such as buying and selling, there isn't much chance for an ETF to realize capital gains. Note that this is a feature that ETFs have in common with index mutual funds—low trading generally means low capital gains.

Current major ETF sponsors are:

  • State Street Global Advisor SPDR such as SPY (S&P500), DIA (Dow Jones Industrial Average)
  • Invesco Powershares: QQQQ (Nasdaq 100 index)
  • Vanguard: VV (Large Cap), VO (Mid Cap), VWO (Emerging Market)
  • BlackRock ishares: IVV (S&P500), IJR (S&P small cap)
  • Charles Schwab: SCHB (U.S. Broad Market ETF)

Exchange Traded Funds (ETFs) are similar to mutual funds; they also can be categorized into 2 main classes such as Equity Exchange Traded Fund (stock ETF) and Fixed Income Exchange Traded Funds (bond ETF). As usual, the bond ETF is less volatile than stock ETF. In this article, I will get into details about Top 10 Popular ETF to invest in either bond ETF or Stock ETF.

Bond ETF or Fixed Income ETF can be classified into two main categories such as taxable bond ETF and municipal bond ETF. Taxable bond ETF can consist of short term bond, intermediate term bond, and long term bond ETF including Investment Grade Bond or High Yield Bond ETF. The other bond ETFs are non taxable bond ETF or municipal bond ETF. The municipal bond has advantages especially for people that pay high income tax on Federal and state level since these Bond ETFs are tax free.

Stock ETF or Equity ETF can be classified into three main categories such as Domestic Stock ETF, International Stock ETF and Emerging Market ETF. Domestic Stock ETFs include domestic small cap stock ETF, mid cap stock ETF, and large cap stock ETF. International Stock ETFs include European Stock ETF, Pacific Stock ETF, and more. Emerging Stock ETF include most developing countries in Asia, Africa and Eastern Europe. Some of these countries are known as BRIC acronym (Brazil, Russia, India and China).

Other sector ETFs are: REIT ETF, commodity ETF (Gold, Silver, Natural Gas etc), and specific country ETF (Brazil, Russia, India etc)


Top 10 Popular ETF Criteria

My list mainly consists of 3 or more star of Morningstar rating and big asset underlying the exchange traded funds (ETF). Usually, big asset means lot of confident by investor as well constitutional to invest in these funds. With 3 or more star rating, this means the fund has consistently perform under any market condition and should perform better or at least average compare to many of its index benchmark. Note: Most of ETFs are passively managed and track its index benchmark.

The Top 10 Popular ETF to invest is:

  1. SPDR S&P 500
  2. SPDR Gold Shares
  3. iShares MSCI Emerging Markets Index
  4. iShares MSCI EAFE Index
  5. Vanguard Emerging Markets Stock ETF
  6. iShares S&P 500 Index
  7. iShares Barclays TIPS Bond
  8. PowerShares QQQ
  9. iShares Russell 2000 Index
  10. Vanguard Total Stock Market ETF

Table Comparison of 20 Top Popular ETFs

(click column header to sort results)
No  
Fund Name  
Ticker  
Category  
MorningStar Rating  
Yield  
Net Assets  
Expense Ratio  
Annual Turnover Ratio  
Inception Date  
1
SPDR S&P 500
SPY
Domestic Stock
3
1.91%
72.04B
0.09%
6.68%
22-Jan-93
2
SPDR Gold Shares
GLD
Commodity
5
0.00%
48.17B
0.40%
0.00%
18-Nov-04
3
iShares MSCI Emerging Markets Index
EEM
Emerging Mkts
4
1.45%
38.96B
0.72%
5.00%
7-Apr-03
4
iShares MSCI EAFE Index
EFA
International
3
2.62%
33.39B
0.35%
7.00%
14-Aug-01
5
Vanguard Emerging Markets Stock ETF
VWO
Emerging Mkts
4
1.31%
29.34B
0.27%
12.00%
4-Mar-05
6
iShares S&P 500 Index
IVV
Domestic Stock
3
1.91%
22.07B
0.09%
7.00%
15-May-00
7
iShares Barclays TIPS Bond
TIP
TIP Bond
4
3.59%
20.55B
0.20%
15.00%
4-Dec-03
8
PowerShares QQQ
QQQQ
Domestic Stock
3
0.57%
18.84B
0.20%
8.19%
10-Mar-99
9
iShares Russell 2000 Index
IWM
Domestic Stock
3
1.12%
15.08B
0.20%
22.00%
22-May-00
10
Vanguard Total Stock Market ETF
VTI
Domestic Stock
4
1.98%
14.22B
0.07%
5.00%
24-May-01
11
iShares iBoxx $ Invest Grade Corp Bond
LQD
Long-Term Bond
3
5.05%
14.00B
0.15%
79.00%
22-Jul-02
12
iShares Barclays Aggregate Bond
AGG
Intermediate-Term Bond
3
3.63%
12.45B
0.20%
488.00%
22-Sep-03
13
iShares Russell 1000 Growth Index
IWF
Domestic Stock
3
1.46%
10.42B
0.20%
19.00%
22-May-00
14
iShares MSCI Brazil Index
EWZ
Country - Brazil
3
3.66%
9.58B
0.65%
30.00%
10-Jul-00
15
SPDR S&P MidCap 400
MDY
Domestic Stock
4
1.19%
9.14B
0.25%
24.59%
4-May-95
16
iShares Barclays 1-3 Year Treasury Bond
SHY
Short Government
3
1.23%
8.76B
0.15%
62.00%
22-Jul-02
17
SPDR Dow Jones Industrial Average
DIA
Domestic Stock
4
2.45%
8.53B
0.17%
5.39%
13-Jan-98
18
iShares Russell 1000 Value Index
IWD
Domestic Stock
3
2.08%
8.49B
0.20%
24.00%
22-May-00
19
Vanguard Total Bond Market ETF
BND
Intermediate-Term Bond
3
3.62%
8.37B
0.12%
80.00%
3-Apr-07
20
iShares FTSE/Xinhua China 25 Index
FXI
Country - China
2
1.66%
8.20B
0.73%
44.00%
5-Oct-04
Top 20 table comparison
SPDR SPY Holding
SPDR SPY Holding

1. SPDR S&P 500

SPDR S&P 500 ETF is one of the oldest ETF. It has been around since 1993. The SPDR S&P 500 ETF seeks to correspond generally to the price and yield performance, before fees and expenses, of the S&P 500 Index. SPDR Trust is an exchange-traded fund that holds all of the S&P 500 Index stocks. It is comprised of undivided ownership interests called SPDRs. The fund issues and redeems SPDRs only in multiples of 50,000 SPDRs in exchange for S&P 500 Index stocks and cash. The total expense ratio is 0.09% per year which is low compare to most mutual funds.

SPDR S&P 500 SPY is a solid core equity / stock holding because of its broad diversification across sectors and individual stocks, relatively low volatility, and low expense ratio. The S&P 500 is frequently used as a proxy for the full U.S. market and as an indicator of the economic health of the nation.

The primary portfolio consists of large blend stocks. As of November 2010, the top 3 sectors of fund are Financial Services, Energy and Consumer Goods. Top 10 largest equity holdings for this fund include Exxon Mobil Corp, Apple Inc, Microsoft Corporation, International Business Machines Corp (IBM), Procter & Gamble Company (P&G), General Electric (GE), Johnson & Johnson (JNJ), AT&T Inc, Chevron Corporation, and J.P. Morgan Chase & Co.

2. SPDR Gold Shares

SPDR Gold Shares seeks to replicate the performance, net of expenses, of the price of gold bullion. Issuing shares backed by physical bullion, SPDR Gold Shares GLD aims to offer investors the price performance of spot gold, minus administrative expense costs. Bullion is held in London vaults under the custody of HSBC Bank USA, N.A., ridding investors of the inefficiencies and inconveniences associated with transporting and storing the commodity.

The primary portfolio consists of gold commodity. As of November2010, the top holding is Physical Gold Bullion which is valued at 48 billion.

3. iShares MSCI Emerging Markets Index

iShares MSCI Emerging Markets Index seeks investment results that correspond generally to the price and yield performance of the MSCI Emerging Markets index. The fund generally invests at least 90% of assets in the securities of the underlying index or in ADRs and GDRs representing such securities. The index was developed by MSCI as an equity benchmark for international stock performance.

IShares MSCI Emerging Markets Index EEM provides broad exposure to the emerging-markets large-cap universe. This fund is appropriate as a core investor holding although it would be not recommended for the bulk of international equity exposure given its higher level of volatility--emerging-markets large caps have been about 60% more volatile than U.S. large caps over the past 15 years.

The primary portfolio consists of large blend Diversified Emerging Markets stocks. As of November 2010, the top 5 countries of fund are China, Brazil, South Korea, Taiwan and South Africa. Top 10 largest equity holdings for this fund include Samsung Electronics Co, Petroleo Brasileiro S.A. ADR, China Mobile Ltd, Vale S.A. ADR, Itau Unibanco Holding S.A. ADR, Gazprom, Taiwan Semiconductor Manufacturing ADR, HDFC Bank ADR, Infosys Technologies ADR, and America Movil S.A.B.


iShares MSCI EAFE Index Holding
iShares MSCI EAFE Index Holding

4. iShares MSCI EAFE Index

iShares MSCI EAFE Index ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI EAFE index benchmark. The fund invests majority of the assets in the securities of the underlying index. The underlying index has been developed by MSCI as an equity benchmark for its international stock performance. The underlying index includes stocks from Europe, Australasia and the Far East.

IShares MSCI EAFE Index EFA is the biggest and best-known international ETF and tracks the most established foreign large-cap index. It is still one of the best choices for a core foreign-stock holding. This fund has nearly 8 times the assets of the next-largest developed-market foreign-equity ETF and almost 15 times the daily dollar trading volume, making it the most liquid core foreign option in the ETF universe.

The primary portfolio consists of large blend International stocks. As of November 2010, the top 5 countries of fund are United Kingdom, Japan, France, Australia and Germany. There are 931 holdings in this ETF. Top 10 largest equity holdings for this fund include Nestle SA, HSBC Holding PLC, Vodafone Group, BHP Billiton Limited, BP Plc, Novartis AG, Royal Dutch Shell PLC ADR, Total SA, Telefonica S.A. ADR, and Banco Santander SA ADR.

5. Vanguard Emerging Markets Stock ETF

Vanguard Emerging Markets Stock ETF seeks to track the performance of the MSCI Emerging Markets index. The fund employs a passively managed investment approach by investing all or substantially all of assets in a representative sample of the common stocks included in the MSCI Emerging Markets index. The total expense ratio is 0.27% per year

The primary portfolio consists of large blend Diversified Emerging Markets stocks. As of November 2010, the top 5 countries of fund are China, Brazil, South Korea, Taiwan and India. Top 10 largest equity holdings for this fund include China Mobile Ltd, America Movil S.A.B, Gazprom, Industrial And Commercial Bank Of China Limited, China Construction Bank Corporation, Samsung Electronics Co, China Life Insurance Company, Reliance Industries, CNOOC LTD, and Bank of China Ltd.

6. iShares S&P 500 Index

The iShares S&P 500 Index objective is to invest closely correspond to the S&P 500 index performance, before fees and expenses. The fund invests at least 90% of assets in S&P 500 index securities. The index measures the performance of the large-capitalization sector of the U.S. equity market. As of May 31, 2010, the index included approximately 75% of the market capitalization of all publicly-traded U.S. equity securities. The total expense ratio is 0.09% per year.

The primary portfolio consists of large blend stocks. As of November 2010, the top 3 sectors of fund are Financial Services, Energy and Consumer Goods. Top 10 largest equity holdings for this fund include Exxon Mobil Corp, Apple Inc, Microsoft Corporation, Procter & Gamble Company (P&G), Johnson & Johnson (JNJ), International Business Machines Corp (IBM), General Electric (GE), J.P. Morgan Chase & Co , Bank of America, and AT&T Inc.


7. iShares Barclays TIPS Bond

The iShares Barclays TIPS Bond is one of the popular bonds ETF. It seeks results to mimic the price and yield performance of the Barclays Capital U.S.Treasury Inflation Protected Securities (TIPS) index (Series-L), before fees and expenses. The fund invests at least 90% of the assets in the inflation-protected bonds of its underlying index and at least 95% if the assets in U.S. government bonds. It may also invest up to 10% of assets in U.S. government bonds not included in the underlying index. The fund invests up to 5% of assets in repurchase agreements collateralized by U.S. government obligations and in cash and cash equivalents.

IShares Barclays TIPS Bond TIP is ideal for investors looking for easy and low-cost access to Treasury Inflation-Protected Securities or TIPS. The fund provides a laddered structure with the underlying index holding securities that range from 1.0 year to 20 years in duration. This fund is a nice complement in a core portfolio to exchange-traded funds that track the Barclays Aggregate Bond Index because that index excludes inflation-protected securities

The primary portfolio consists of medium interest rate sensitivity and high credit quality bond. The top holding consists of both US Treasury Bond and US Treasury note with different yields and maturity years.

8. PowerShares QQQ

PowerShares QQQ is a unit investment trust designed to correspond generally to the Nasdaq-100 index performance, before fees and expenses. The fund holds all the stocks in the Nasdaq-100 index, which consists of the largest non-financial securities listed on the Nasdaq Stock Market. The total expense ratio is 0.20% per year. The ETF has returned 18.07% over the past year and -3.11% over the past three years. Most of the stocks in this ETF are either Technology or Biotechnology stocks.

The primary portfolio consists of large growthtechnology stocks (i.e. Large Growth ETF). As of November 2010, the top 3 sectors of fund areHardware, Software and Telecommunication. Top 10 largest equity holdings for this fund include Apple Inc, Qualcomm Inc, Google Inc, Microsoft Corporation, Oracle Corporation, Amazon.com Inc, Cisco System Inc, Teva Pharmaceutical Industries ADR, Intel Corporation and Gilead Sciences Inc.It has about 20% asset weighted to Apple Inc which can be classified as non-diversified ETF in my opinion.

9. iShares Russell 2000 Index

The iShares Russell 2000 Index ETF invests correspond generally to the price and yield performance of the Russell 2000 index. The fund invests at least 90% of assets in the securities of the underlying index. The fund invests in approximately 2000 of the smallest capitalization-weighted companies in the Russell 3000 index. The total expense ratio is 0.20% per year. The ETF has returned 21.17% over the past year and -8.56% over the past three years.

The primary portfolio consists of diversified US small cap companystocks. As of November 2010, the top 3 sectors of fund are Financial Services, Industrial Materials and Healthcare. Top 10 largest equity holdings for this fund include Riverbed Technology Inc, TIBCO Software Inc, Sothebys A, VeriFone Systems Inc, Nordson Corporation, Brigham Exploration Company, Rackspace Hosting Inc, Parametric Technology Corporation, Dril-Quip Inc, and American Capital Ltd.

10. Vanguard Total Stock Market ETF

Vanguard Total Stock Market ETF is one of most well known ETF because of its low expense ratio fee. The ETF covers the entire U.S. stock market for a rock-bottom cost of 0.07% a year, and it provides investors with an excellent choice for a core equity holding. This fund tracks the MSCI U.S. Broad Market Index, which includes nearly all publicly traded domestic stocks. It typically holds 1,200-1,300 of the stocks in its target index. The ETF has returned 15.87% over the past year and -9.15% over the past three years.

The primary portfolio consists of large blend stocks. As of November 2010, the top 3 sectors of fund are Financial Services, Healthcare and Industrial Materials. Top 10 largest equity holdings for this fund include Exxon Mobil Corp, Apple Inc, Microsoft Corporation, Procter & Gamble Company (P&G), Johnson & Johnson (JNJ), International Business Machines Corp (IBM), General Electric (GE), J.P. Morgan Chase & Co, Bank of American and AT&T Inc.


How can I buy ETFs?

You will need a brokerage to buy ETFs since it is traded like a stock. Don’t get intimidated with this issue, you can check my review of various brokerages to buy and sell ETF. I would recommend using the following brokerages:

  • Zecco – You can trade stock, ETF, CEF for $4.50 per trade. Also, if you have more than $25,000 account balance, you will get 10 free trades per month.
  • Vanguard – You can trade Vanguard ETFs for free and Trade stock for $7.00 per trade up to 25 trades a year otherwise it is $20 per trade. It also offers various mutual funds that track indexes.
  • Scottrade – You can trade ETF using Scottrade for $7.00 per trade. You can also trade stock for the same commission fee. It also offer various mutual funds. 3,000 No load & No Transaction Fees (NTF) fund for free and 15,000 mutual funds.
  • Fidelity – Fidelity offers 25 ishares ETF for free which include iShares Russell 2000 Index (IWM), iShares S&P 500 Index (IVV) and more. It is also a one stop shop for mutual funds as well as cash management banking. Commission for trading is only $7.95 per trade.

Disclosure: I have no affiliation with any of these ETFs. I have no position in any of these ETFs currently. Please do your own research for additional details. Please trade and invest responsibly. Past Performance is No Guarantee of Future Results.


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