As of my most recent issue of Cabot Money Club Stock of the Month, I am including a section called ETF Strategies which is all about ETF investing. With that new section, there will be a portfolio of stocks and ETFs, labeled Aggressive, Moderate, and Conservative. From those investments, I will offer several portfolio allocation ideas, based on age and risk aversion, which will enable my subscribers to customize their own portfolios.
In my first 401k, my only investment choices were mutual funds. After all, exchange-traded funds did not exist then. But today, thankfully, ETFs in retirement funds are easy to come by. Since they were introduced in 1993, the number of ETFs has grown to 8,552 worldwide, holding some $10.02 trillion in assets.
And there’s pretty much an ETF for everyone. Whatever your interest—growth, value, income, balanced, target, or bond funds—believe me, you can find an ETF that meets your needs.
With that in mind, I wanted to talk a bit about ETF investing today, and offer some ideas to add to your portfolio.
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Exchange-traded funds (ETFs)—like mutual funds—are strategies for pooled investing—where your monies are “pooled” with other investors so that you can invest in a basket of stocks. These vehicles can be an excellent way to invest in areas such as foreign countries that limit investment to outsiders, and offer an entrée into sectors in which you want to invest, but don’t have much expertise. And they are a good way to diversify your portfolio. The pooled investing feature is the most common element to both types of instruments. Additionally, both types of investments can be broken down into smaller categories, such as sectors, investing strategy, market capitalization, and others. But there are differences…
- ETF expenses are significantly less than most mutual funds. Trading in ETFs does require a broker and potentially a commission. However, the total expenses are, on average, much lower than the expenses of mutual funds investing in similar asset categories. The average annual expense ratio for ETFs and mutual funds is 0.518% (down from 0.562% in 2016, according to Morningstar), and for ETFs alone, is 0.44%. Some of the largest indexed ETFs have expense ratios near .10%.
- Liquidity and transparency. ETFs can be traded all day long, instead of just once daily for mutual funds. You buy and sell them just like stocks. And unlike mutual funds, with ETFs, you can use limit orders, sell them short and you can trade options on them.
- Less capital gains distributions. Investment turnover in ETFs is not as frequent as in mutual funds, lending themselves to lower capital gain distributions; hence, a smaller tax bite for most investors.
Of course, there are also some advantages that mutual funds have over ETF investing, including:
- Wider variety. There are approximately 2,300 U.S. ETFs. But there are almost 8,000 mutual funds, offering investors many choices.
- Less leverage risk. Mutual funds do not generally carry the leverage of ETFs, so that might make many of them less risky than their comparable ETFs.
However, because of their numerous advantages, I usually prefer ETF investing over mutual funds.
I think it’s always interesting to see which sectors (and ETFs) investors favor and which they avoid. So, I’m including the tables below showing the latest inflows and outflows from last month.
Top Gainers (August 2022)
Ticker | Name | Issuer | Net Flows ($, mm) | AUM ($M) | % of AUM | YTD 2022 Net Flows($, mm) |
XLF | Financial Select Sector SPDR Fund | State Street Global Advisors | 3,853.46 | 33,513.19 | 11.50% | -4,420.99 |
VOO | Vanguard S&P 500 ETF | Vanguard | 3,620.95 | 265,704.75 | 1.36% | 32,902.93 |
BND | Vanguard Total Bond Market ETF | Vanguard | 2,587.64 | 83,537.85 | 3.10% | 9,573.16 |
VCSH | Vanguard Short-Term Corporate Bond ETF | Vanguard | 2,562.56 | 43,784.90 | 5.85% | 4,766.24 |
VTI | Vanguard Total Stock Market ETF | Vanguard | 2,465.08 | 263,437.14 | 0.94% | 16,769.70 |
IEF | iShares 7-10 Year Treasury Bond ETF | Blackrock | 2,436.61 | 23,130.33 | 10.53% | 7,692.14 |
IVV | iShares Core S&P 500 ETF | Blackrock | 2,311.09 | 298,263.61 | 0.77% | 18,125.71 |
VGIT | Vanguard Intermediate-Term Treasury Index ETF | Vanguard | 2,227.45 | 11,748.82 | 18.96% | 3,139.13 |
TLT | iShares 20+ Year Treasury Bond ETF | Blackrock | 2,167.34 | 25,661.88 | 8.45% | 11,089.82 |
AGG | iShares Core U.S. Aggregate Bond ETF | Blackrock | 1,462.60 | 82,546.80 | 1.77% | 813.79 |
Source: ETF.com
Biggest Losers (August 2022)
Ticker | Name | Issuer | Net Flows ($, mm) | AUM ($M) | % of AUM | YTD 2022 Net Flows($, mm) |
BBEU | JPMorgan BetaBuilders Europe ETF | JPMorgan Chase | -2,445.12 | 3,029.88 | -80.70% | -4,758.67 |
HYG | iShares iBoxx USD High Yield Corporate Bond ETF | Blackrock | -2,325.01 | 12,334.87 | -18.85% | -6,856.41 |
GLD | SPDR Gold Trust | State Street Global Advisors | -1,824.08 | 54,130.62 | -3.37% | 395.93 |
SPYD | SPDR Portfolio S&P 500 High Dividend ETF | State Street Global Advisors | -1,458.58 | 7,865.69 | -18.54% | 2,926.37 |
BIL | SPDR Bloomberg 1-3 Month T-Bill ETF | State Street Global Advisors | -1,379.34 | 17,393.08 | -7.93% | 3,790.61 |
MUB | iShares National Muni Bond ETF | Blackrock | -1,308.42 | 27,596.08 | -4.74% | 4,676.08 |
ITOT | iShares Core S&P Total U.S. Stock Market ETF | Blackrock | -1,184.27 | 40,995.46 | -2.89% | 2,131.78 |
SDY | SPDR S&P Dividend ETF | State Street Global Advisors | -1,167.89 | 22,097.29 | -5.29% | 1,931.58 |
EFA | iShares MSCI EAFE ETF | Blackrock | -1,060.21 | 44,143.52 | -2.40% | -1,046.97 |
QQQ | Invesco QQQ Trust | Invesco | -1,025.00 | 165,267.01 | -0.62% | 1,146.12 |
As you can see—and no surprise, given the market’s recent volatility—income and balanced investments were on the top of the wish list. And investors began to shun gold, high-yield, muni bonds, and emerging markets.
But those categories change frequently. I like to see the inflows (and outflows), but because I’m really more interested in making money for our subscribers, the performance numbers are really important to me.
I just ran a few search screens and wanted to show you which ETFs have had the best performance for the last three years. I then reviewed their one-year and YTD returns.
ETF | Symbol | Category | 3-Yr Return (%) | 1-Yr. Return (%) | YTD Return (%) |
Global X Lithium & Battery | LIT | Natural Resources | 43.56 | -12.96 | -13.72 |
First Trust NASDAQ Cln Edge | QCLN | Miscellaneous | 44.65 | 1.17 | -3.11 |
Next, I analyzed their fundamental and technical indicators to determine if they were still buyable.
Both LIT and QCLN look promising.
Global X Lithium & Battery Tech ETF (LIT) is rated four stars by Morningstar and labeled Above Average Risk. Here are the ETFs top 10 holdings:
Holdings | % Portfolio Weight |
Albemarle Corp | 12.00% |
Yunnan Energy New Material Co Ltd A | 6.67% |
Contemporary Amperex Technology Co Ltd Class A | 6.41% |
EVE Energy Co Ltd | 5.81% |
BYD Co Ltd Class H | 5.23% |
NAURA Technology Group Co Ltd | 5.11% |
Ganfeng Lithium Co Ltd | 5.10% |
Wuxi Lead Intelligent Equipment Co Ltd A | 4.46% |
Mineral Resources Ltd | 4.02% |
Samsung SDI Co Ltd | 3.94% |
Source: Finance.Yahoo.com
First Trust NASDAQ® Cln Edge® GrnEngyETF (QCLN) is not currently rated by Morningstar but has a “B” rating by ETF.com.
Holdings | % Portfolio Weight |
NIO Inc ADR | 9.85% |
Tesla Inc | 7.77% |
Enphase Energy Inc | 7.47% |
Albemarle Corp | 5.90% |
Plug Power Inc | 5.83% |
XPeng Inc ADR | 4.94% |
SolarEdge Technologies Inc | 3.83% |
Sunrun Inc | 3.56% |
Cree Inc | 3.50% |
ON Semiconductor Corp | 3.42% |
I’m a big fan of greentech, which has not done well in the recent market volatility. But as Warren Buffett says, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
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