Our Favorite Stock ETFs

7/15/2013


Roughly $1.22 trillion was spread across nearly 990 exchange-traded equity funds at the end of May, according to the Investment Company Institute. With so many ETFs available, narrowing your choices can be an overwhelming task.

That's where we can help. Listed below are top stock ETFs from nine different fund categories.

How did we cull the universe to only nine funds? We focused on diversified U.S. stock ETFs from core equity categories delivering consistently solid relative returns.

Rarely do funds outperform peers year in and year out. But investing in persistent winners often translates into strong results and moderate portfolio turnover, which can reduce trading costs and taxes. The nine ETFs boast returns that typically outpaced peers over the last one- , three- , and five-year periods. We also screened for low expense ratios. As we've said many times over the years, fund expenses are among the best predictors of future performance. Regardless of market conditions, funds with low expenses have an easier time outperforming their peers. The nine funds have an average annual expense ratio of 0.27%.

Three top picks are profiled below.

iShares S&P MidCap 400 Growth ($133; IJK) focuses on companies with the strongest growth characteristics based on earnings, sales, and share-price momentum. The ETF holds 226 stocks, and sector exposure leans toward technology (20% of assets). The fund ranks among the top 1% of its peer group for 10-year total returns.


iShares Morningstar Large ($99; JKD) ranks among the top 10% of large-cap blend funds for one- , three- ,and five-year returns. Major sector weightings are health care (18% of assets), consumer discretionary (16%), and financials (16%). The 10 largest holdings represent nearly 42% of assets, with Microsoft the biggest at 6%. The fund, which yields 2.0%, has returned 21.5% so far this year.


WisdomTree SmallCap Earnings ($70; EES), which invests in only profitable companies, is tilted toward microcap stocks. The fund holds roughly 900 stocks, with an average market value of only $778 million. More than 23% of the fund is invested in financials, including real estate. Up more than 20% so far in 2013, the fund ranks among the top 1% of its category for five-year returns.

OUR RECOMMENDED MUTUAL FUNDS
 
-- Year-To-Date --
--- % Of Portfolio ---
 
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Fund
Rating
Artisan International ($26; ARTIX)
7.3
A
6
6
98
Dreyfus Midcap Index ($34; PESPX)
18.3
C
0
0
66
Dreyfus Small Cap Stock Index
($27; DISSX)
21.3
B
0
0
81
Fidelity High Income ($9; SPHIX)
0.9
D
6
5
66
Homestead Small Company
($33; HSCSX)
20.8
B
5
8
99
PIMCO Total Return ETF
($105; BOND)
(2.8)
C
7
0
NA
T. Rowe Price New Horizons
($41; PRNHX)
24.8
A
9
9
94
T. Rowe Price Value
($32; TRVLX)
21.2
A
7
8
94
Thompson Bond ($12; THOPX)
0.3
A
6
0
95
Vanguard 500 Index ($152; VFINX)
17.1
C
6
7
73
Vanguard Dividend Growth
($19; VDIGX)
18.0
B
12
12
97
Vanguard GNMA ($10; VFIIX)
(3.5)
D
0
0
66
Vanguard Growth Index
($41; VIGRX)
13.7
C
11
11
90
Vanguard Inter.-Term Tax-Exempt
($14; VWITX)
(3.2)
C
0
0
65
Vanguard Selected Value
($25; VASVX)
20.9
B
5
7
89
Vanguard Short-Term Invest.-Grade
($11; VFSTX)
(0.6)
C
0
0
88
Vanguard Total Bond Mkt. Index
($11; VBMFX)
(3.0)
C
0
0
26
Vanguard Total Int'l Stock Index
($15; VGTSX)
0.7
E
4
4
42
Vanguard Wellesley Income
($25; VWINX)
4.2
A
0
0
98
Vanguard Wellington ($37; VWELX)

10.7

A
6
9
97
Wasatch International Growth
($26; WAIGX)
12.1
B
5
7
100
Wells Fargo Advantage Discovery
($31; STDIX)
22.7
A
5
7
91
* Year-to-date ranks through July 9 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%. Fund ratings are percentile ranks based on our fund-rating system.


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