Finding the best ETFs to buy can be quite a challenge, given the rapid rise of exchange-traded funds and the wide variety of options available to you.
But the best ETFs tend to be fairly straightforward. After all, the power of these funds is that they offer a focused play on a sector, a trend or a country, but while offering enough diversification to ensure you don’t get left behind just because of one bad headline or earnings report.
Generally, I avoid all funds with leverage — those 2x and 3x funds that greedy swing traders like to deploy as a way to get rich quick. They work well if you’re right, but I’m a firm believer in limiting my losses whenever possible, and the downside risk is just too much for the typical investor.
Furthermore, I look for funds that tend to be focused on equities and not strange derivatives. Exchange-traded notes, or ETNs, are often more opaque and much more expensive than ETFs that simply are a conglomeration of stocks.
After that, I look for the best macro trends — and the best ETFs to buy based not just on the news, but also on their individual holdings and expense ratios.
It all adds up to this list of the seven best ETFs to buy for June. Take a look!
Best ETFs for June: Purefunds ISE Cyber Security ETF (HACK)
YTD Performance: +14% vs. +2% for the S&P 500
Assets: $740 million
Expense Ratio: 0.75%, or $75 annually on every $10,000 invested
Top Holdings: Cyberark Software Ltd. (NASDAQ:CYBR), FireEye Inc. (NASDAQ:FEYE), Infoblox Inc. (NYSE:BLOX)
It’s nice to think that technology stocks are focused solely on disrupting old norms to create great new business models, but some high-flying tech players right now are very much in demand because of their ability to keep things constant and reliable — particularly in the face of cybersecurity threats.
That’s where the Purefunds Cyber Security ETF (NYSEARCA:HACK) comes in.
As America’s first cybersecurity-focused ETF, components of this fund all help businesses and consumers protect businesses, governments or consumers from fraud and abuse at the hands of hackers.
Given recent headlines and recent outperformance, it’s easy to like the trend. But why play HACK instead of individual players?
Well, because in a high-growth area like cybersecurity, there tends to be a general run-up followed by a period of painful consolidation. And while that’s great if you’re holding a winner that gobbles up market share or gets bought out for a massive premium, it stinks if you are holding one of the losers.
Play it safe and just buy the entire basked of frontrunners via HACK.
Best ETFs for June: Global X FTSE Portugal 20 ETF (NYSE:PGAL)
The Global X FTSE Portugal 20 ETF (NYSEARCA:PGAL) might seem like an arcane and risky bet. But you can’t argue with performance, and this country-focused fund that holds Portugal’s 20 biggest publicly traded stocks has done quite well both year-to-date and in the past few weeks or so.
As one of the PIIGS — that would be Portugal, Italy, Ireland, Greece and Spain — that continually cause headaches in the eurozone, the recent focus on yet another bailout for Greece had rekindled fears that these other problem nations would be dragged down into the muck, too.
However, Portugal is decidedly better off than Greece.
Investors need to look at the facts. Specifically, that Portugal pledged to repay its IMF bailout loan early as a sign of continued improvement for the nation. And while growth was weak last year, the nation managed to squeak out 0.9% GDP growth on the year, according to Eurostat, as it finally exited recession.
Best ETFs for June: SPDR S&P Biotech (ETF) (XBI)
The SPDR S&P Biotech (ETF) (NYSEARCA:XBI) is an old favorite of mine to capitalize on both the reliable long-term growth in healthcare spending and the breakout potential of a new generation of cures.
Playing individual biotech can be a risky boom-or-bust game, but this diversified ETF is a great way to get the growth without trading stability.
The talk of a biotech “bubble” has all clearly been overblown in 2015, because while there has been volatility — which is quite characteristic for the sector — the overall trend has still been higher. And after a pause in May, the time might be right for new money to buy in and ride the next leg higher.
This biotech ETF is admittedly smaller than some of the other healthcare funds that are out there, both in its total assets under management and the companies that it invests in. But that’s good, because you don’t want to think you’re in biotechs only to find out your ETF of choice is focused on $100 billion-plus megacaps like Gilead Sciences, Inc. (NASDAQ:GILD).
Also, the diversification in XBI is very attractive. Consider a competing biotech fund, the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB), which has nearly 25% of its assets in its top three positions right now. That’s in contrast to the XBI that has no more than 2.1% weighting for a single stock.
Best ETFs for June: WisdomTree Japan Hedged Equity Fund (DXJ)
Japanese stocks have quietly been climbing up to 15-year highs amid relatively little growth and continued fears of a return to its dreaded deflationary spiral of the 1990s. Yes, the yen is weak and that’s helping exports a bit … but certainly not enough to justify the continued rise of stocks at a 20% clip in 2015.
The reason for outperformance is, simply put, optimism.
Japanese Prime Minister Shinzo Abe was ushered in to great fanfare at the end of 2012, and sparked a big rally in the Nikkei in the first half of 2013 as a result. Then, stocks didn’t do much of anything… until the last few months when a renewed push for “Abenomics” roused the animal spirits of Japanese investors once more.
The policies may fall flat — and if they do, so will Japanese stocks. But the WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ) allows you to benefit not just from the growth in Japense stocks, but also the weakness of the yen vs. the dollar. Consider that a non-hedged ETF like the iShares MSCI Japan ETF (NYSEARCA:EWJ) is up only 15% this year thanks to currency exchange rates.
If you’re worried that the U.S. is overbought and you’re leery of other nations, consider a sentiment play based on the hopes of loose monetary policy boosting stocks there the same way QE helped U.S. stocks and is lifting Europe now.
Best ETFs for June: Guggenheim Solar ETF (TAN)
The Guggenheim Solar ETF (NYSEARCA:TAN) has admittedly had a bad run in the last week or two … but that’s almost wholly because of one single component. Hanergy Thin Film Power Group was roughly cut in half after competing Chinese solar stock Yingli Green Energy (NYSE:YGE) reported “substantial doubt as to our ability to continue as a going concern.”
But Hanergy is different than Yingli, which took on huge debts to expand way too fast, and this seems like an overdone selloff in sympathy. Furthermore, the domestic components of the Guggenheim Solar ETF have been doing quite well and have lifted the fund to impressive year-to-date gains even amid the Hanergy debacle.
It would be incredibly aggressive to buy Hanergy right now, and traders with nerves of steel may want to. But for the less bold investor, banking on the continued momentum of solar right now will hedge your bets even if Hanergy does not snap back after this recent selloff. TAN is highly diversified and is a great longer-term holding for anyone who wants to play alternative energy.
* Expense ratio includes a fee waiver in place through Dec. 31, 2016
Best ETFs for June: iShares MSCI China Small-Cap ETF (ECNS)
As the name implies, the iShares MSCI China Small-Cap ETF (ECNS) is a play on China small caps — a lucrative but counterintuitive bet right now for aggressive investors. As major indicators continue to weaken in China, the prevailing consensus is that Beijing will inject big stimulus into the economy. That will benefit smaller Chinese stocks most since a little government cash goes a long way for these companies.
The ECNS fund from iShares is admittedly extremely small with less than $50 million in assets, but that’s not uncommon for such a strategic and narrowly focused fund.
On the plus side, ECNS has one of the lower expense ratios among China ETFs with a small-cap strategy. It also is very well diversified ,with the top holding, Goldin Properties, at 2.7% of the portfolio and each of the other 350-plus positions at 1.2% or less in weighting.
Best ETFs for June: Market Vectors Russia ETF Trust (RSX)
Crude oil prices had been in a tailspin from late last year before bottoming in March and rebounding in April. May has been awfully quiet, but many traders see that pause as a good sign since crude hasn’t retested its lows … and the stability could hint that another leg up is to come.
That means the time could be perfect to dive in to the oversold Market Vectors Russia ETF Trust (NYSEARCA:RSX), which is overweight in some massive state-run energy stocks.
But why buy RSX instead of just oil directly, then? Well, because I remain convinced that oil is still too hot to handle directly — and while bargain hunting in Russia is only slightly less aggressive than riding commodity price volatility directly, the diversification of RSX makes it a bit more stable.
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.