by Jeff Reeves | October 25, 2012 6:00 am
Exchange-traded funds, or ETFs, are the most popular way for many investors to get into the market. That’s because with just a small sum of money, you can tap into built-in diversification, much like mutual fund investing.
The bonuses with ETFs, however, is that there’s no minimum buy-in, plus they’re liquid and trade during market hours.
If you’re an investor with just a small nest egg looking to tap into the wealth of Wall Street, consider these 10 top ETFs as a place to start. The funds cover a wide variety of flavors, from domestic blue chips to international stocks to gold, and owning just a handful of these top ETFs will make sure you have your finger in all the major opportunities the market may present.
Here are the 10 biggest, baddest ETFs on Wall Street:
Assets Under Management: $22.3 billion
As the name implies, the Vanguard Total Stock Market ETF (NYSE:VTI) is meant to give you a little bit of everything on Wall Street. It previously has been pegged to the MSCI U.S. Broad Market Index, but will change to the University of Chicago’s Center for Research in Security Prices as its benchmark as of January 2013. (Read more on the changes here.)
Whatever the benchmark, the strategy remains the same — a low-cost way to buy the entire market through passive management. This ETF is up 13% year-to-date in 2012 and sports a rock-bottom expense ratio of just 0.06%. According to Vanguard, this is 95% lower than the average expense of similar funds.
Assets Under Management: $23.2 billion
With the Fed’s zero-interest-rate policies and high federal deficits, many are worried inflation could be a concern in the future. That makes the iShares Barclays TIPS Bond Fund (NYSE:TIP) very popular with investors.
TIPS are “Treasury Inflation Protected Securities,” which are tied to the consumer price index. The returns don’t burn down the house — especially if inflation is modest –- but this ETF ensures your purchasing power is protected if inflation does become a problem. This ETF is up 4% year-to-date thanks to modest inflation thus far in 2012. The net expense ratio is 0.2%
Assets Under Management: $25.4 billion
With returns of just 8% year-to-date, the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE:LQD) isn’t particularly thrilling, but it’s a great bedrock play since corporate bonds from companies like General Electric (NYSE:GE), Walmart (NYSE:WMT) and AT&T (NYSE:T) are all but sure things.
The popularity of this fund speaks to the flight to safety, and how investors are content to grab slow-and-steady returns from corporate bonds rather than risk market volatility. Expenses are a low 0.15% too, which is a plus.
Assets Under Management: $32.3 billion
The PowerShares QQQ Trust (NYSE:QQQ) holds all of the component securities of the Nasdaq-100 Index, making it a tech-heavy passively managed ETF. It has an expense ratio of just 0.2%, and is up just over 17% to march in lockstep with the Nasdaq-100.
Unsurprisingly, the fund is overweight in Apple (NASDAQ:AAPL) — just like its price-weighted Nasdaq benchmark — with almost 20% of the holdings focused in this tech giant.
Assets Under Management: $33.0 billion
Recently rebranded as part of iShares’ “Core” lineup, the iShares Core S&P 500 ETF (NYSE:IVV) has a low expense ratio of just 0.07% because it simply owns the 500 S&P components and tracks them accordingly.
As a result, the fund is up just a bit more than 14% as of this writing — almost exactly the performance of its benchmark.
Assets Under Management: $37.5 billion
Although Vanguard has dropped MSCI indices from some of its funds, iShares is keeping the benchmark — as evidenced by its iShares MSCI EAFE Index Fund (NYSE:EFA). This ETF is pegged to the MSCI Europe Australasia and Far East index, and has an expense ratio of 0.34%.
Top holdings include big-name foreign stocks like Nestle (PINK:NSRGY), HSBC (NYSE:HBC) and Novartis (NYSE:NVS), to name a few.
Assets Under Management: $38.4 billion
Another MSCI-benchmarked fund, the iShares MSCI Emerging Markets Index Index (NYSE:EEM) ETF focuses on Latin America and Asia. Top holdings include China Mobile (NYSE:CHL), Samsung and Taiwan Semiconductor (NYSE:TSM).
The fund is a bit pricey for a passive ETF at 0.67%, however.
Assets Under Management: $71.7 billion
The Vanguard Emerging Markets ETF (NYSE:VWO) is the biggest global fund out there. Previously locked into the same MSCI index as the iShares EEM fund, Vanguard is dropping that benchmark in January and instead pegging itself to the FTSE Emerging Index.
The current expense ratio is 0.2%, but part of the reason Vanguard ditched MSCI is because it is convinced it can use a benchmark that allows it to offer ETFs at even lower costs than this.
Assets Under Management: $74.0 billion
The SPDR Gold Trust (NYSE:GLD) by State Street (NYSE:STT) is the most popular pure play on gold for investors because of its ease of trading, firm relationship to gold prices and ease of use as opposed to storing physical gold in your basement and then trying to find a market for it when you want to sell.
With an expense ratio of 0.4% it’s higher than some funds out there but you’re hard pressed to find a more convenient gold play in your portfolio.
Assets Under Management: $111.9 billion
This is the mother of all ETFs that is widely credited for starting the exchange traded funds craze due to its widespread appeal. The SPDR S&P 500 ETF (NYSE:SPY) has a net expense ratio of less than 0.1% thanks to its benchmark to the S&P 500 and the blue chips therein.
If you want to “buy the market,” this ETF is the most common — and perhaps the most effective — way to do so.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
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