It can be a challenge to find the best exchange-traded funds (ETF) for a long-term, diversified portfolio. There are over a thousand ETFs out there. Some appear to be carbon copies, while others carry expense ratios that are unreasonably high.
Nevertheless, the very best ETFs deserve a place in your portfolio. You need broad exposure in order to mitigate risk and to make sure you have at least a piece of that overlooked value stock that becomes a ten-bagger.
This week, as I continue my series, I’m surveying the best ETFs for large-cap value stocks. You can make a lot of money in growth stocks, but value stocks are the realm of the multi-bagger — stocks that ultimately return many multiples of your initial purchase price.
According to ETFdb.com, there are 59 large-cap value ETFs, with expense ratios ranging from just .07% to 1%. They are definitely not created equal. Their year-to-date (YTD) returns range from -3.2% to 13.6% as of Nov. 3.
Best ETFs: Columbia Select Large Cap Value ETF
For aggressive investors, I suggest the Columbia Select Large Cap Value ETF (GVT). This ETF is up 12.84% so far this year. I consider it aggressive because it isn’t as diversified as I want most ETFs to be, with only 38 holdings.
The expense ratio is a bit high at 0.79%, but that’s not outrageous for a category that averages 0.44%. It isn’t terribly liquid, though, so buy in small chunks.
Of the 38 stocks it holds, the top ten make up 36% of total assets.
This “best ETF” apparently thinks the following stocks are very much in the value category, given their status as the top five holdings: Anadarko Petroleum (APC), Citigroup (C), Verizon (VZ), Wells Fargo (WFC), and Applied Materials (AMAT).
Best ETFs: Schwab U.S. Large Cap Value ETF
For the more conservative investor, I suggest the Schwab U.S. Large Cap Value ETF (SCHV). One of the largest ETFs in the category, it also carries the lowest expense ratio at .07%. This “best ETF” is up 8.48% YTD.
It is much more broadly diversified than Columbia’s, with 352 holdings. The top ten only account for 26.6% of the total asset base.
Its sector diversity is appealing. It has 19% of assets invested in financials, 13% in tech, 12% in consumer defensive, 12% in healthcare, 11% in energy and 9% in industrials. The rest is divided between consumer cyclical, utilities (a healthy 5% dose), real estate, communications, and basic materials.
Here we find the kind of famous names you’d expect: ExxonMobil (XOM), Microsoft (MSFT), Johnson & Johnson (JNJ), General Electric (GE) and Wells Fargo.
It’s a low-turnover fund — just 10% of stocks turned over in the past year. Its average price-to-earnings ration is 16.54, not that far removed from the S&P 500. But it enjoys a beta of 0.93 compared to the index, meaning it will be slightly less volatile.
Best ETFs: Guggenheim S&P 500 Pure Value ETF
The best ETF for all-around large-cap value holdings is the companion to the best ETF choice for growth holdings, the Guggenheim S&P 500 Pure Value ETF (RPV).
Just like its growth counterpart, I like the 117 stocks it holds, which is plenty of diversification. Plus, the top ten holdings only account for 19% of the assets.
It’s up 10.04% YTD, so it fits right in between the other two “best ETFs” in performance this year.
The sector breakdown is 25% financials, 14% energy, 9% health care, 8% consumer cyclical, 7% tech, 6% industrial, and 6% consumer defensive and a smattering of other sectors. It has a reasonable expense ratio of .35%.
I particularly like that it is truly seeking out value holdings as opposed to going with big names to make people feel comfortable. Its selections include Alcoa (AA), WellPoint (WLP), Archer-Daniels Midland (ADM) and Xerox (XRX).
Lawrence Meyers does not own any securities mentioned.
