Everyone loves a good deal and, most of the time, the perception of a good deal is the price paid for that good or service. Say you buy a car for $30,000 and your neighbor buys the exact same car for $40,000. Well, you got a good deal. At least compared to your neighbor.
Financial markets do not work like this.
A “good deal” in stocks is based on value and valuation, not the price tag of a stock. It is entirely possible for a stock trading at $500 to be inexpensive relative to the broader market, and it is also possible for a $50 stock to be viewed as expensive.
Unfortunately, history shows some investors are enamored by price tags. Human behavior, since it never changes, tells us this will continue to be the case for, well, forever. The good news is there are instances where low price tags and good values meet. Some of those good examples hail from the world of exchange traded funds.
The following are four of the best ETFs to buy that are trading below $20.
ETFs to Buy Below $20: PowerShares High Yield Equity Dividend Achievers Portfolio (PEY)
Expense Ratio: 0.54% per year, or $54 for every $10,000 invested
12-Month Distribution Rate: 3.3%
Based on Monday’s closing price of just under $14.70, one share of the PowerShares High Yield Equity Dividend Achievers Portfolio (PEY) will run investors about the cost of three trips to Starbucks. However, unlike multiple latte purchases, over the long haul, PEY will inflate investors’ pockets, not lighten them.
Not only is PEY one best ETFs to buy at a bargain, but it is one of the most overlooked dividend ETFs you can buy. The fund turns 12 later this year and has over $700 million in assets under management, so it isn’t a complete outlier — it just doesn’t capture the headlines like other dividend ETFs.
PEY follows the Nasdaq U.S. Dividend Achievers Index, which selects companies based on a combination of dividend growth and yield. This ETF holds 50 companies with over 42% of the fund’s combined weight allocated to the utilities and energy sectors.
Another interesting element to PEY is that although it only holds 50 stocks, its weight spreads out well through the various market cap spectrums. For example, PEY devotes nearly 24% of its weight to small-cap stocks and 41% to mid-cap stocks. Those are large allocations to mid-caps and small-caps relative to other dividend ETFs that are not exclusively devoted to those types of stocks.
ETFs to Buy Below $20: WisdomTree International Utilities Fund (DBU)
Expense Ratio: 0.58%
SEC 30-day Distribution Rate: 3.5%
Even seasoned investors in the utility ETF space have probably reserved allocations for more prosaic funds, such as the Utilities SPDR (ETF) (XLU). But, for just over $16 a share, such investors can bring some international diversification to their portfolios with the WisdomTree International Utilities Fund (DBU).
As its name implies, DBU does not own any U.S. companies, but that does not make it a risky ETF to buy. On the contrary, DBU features exposure to 28 countries, 15 of which are developed markets. That includes a combined 31% of the ETF’s weight going to the U.K., Canada and Italy.
Additionally, DBU’s emerging markets exposure, on a percentage basis, is relatively too small. Given that low interest rates benefit utility stocks and ETFs, it is reasonable to expect DBU will add to its 5% year-to-date gain.
After all, of DBU’s 28 country weights, about 10 have negative interest rates, while four or five others have been paring borrowing costs this year.
ETFs to Buy Below $20: Fidelity MSCI Energy Index ETF (FENY)
Expense Ratio: 0.12%
12-Month Distribution Rate: 3%
Earlier this month, I highlighted energy sector ETFs that are legitimate seasonal plays for the second quarter.
That thesis has proven valid as the Fidelity MSCI Energy Index ETF (FENY) is up 8.5% this month. FENY closed just under $19 on Monday, and while it is worth reiterating that a security’s price tag does not tell its entire story, if one is going to buy an energy sector ETF of this ilk, FENY is one of the best ETFs to buy because its SPDR and Vanguard rivals trade for over $66 and $92, respectively.
Like those ETFs, FENY is heavily allocated to Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX). FENY allocates a combined 38% of its weight to the two largest U.S. oil companies.
Fundamentally, it appears oil majors have endured the worst of the commodity’s price retrenchment and negative dividend action from some of the names in FENY have ebbed a bit this year. Plus, some of the ETF’s holdings, such as Exxon are still generating decent amounts of cash.
Speaking of cash, investors will save that with FENY due its low fee of $12 per $10,000 invested. Additional savings can be realized by Fidelity clients because they can trade FENY commission-free.
ETFs to Buy Below $20: Global X Social Media ETF (SOCL)
Expense Ratio: 0.65%
12-Month Distribution Rate: 3.3%
The Global X Social Media ETF (SOCL) is up 5.4% over the past 90 days, but still down 5.8% year to date: This illustrates just how brutal the first six weeks of 2016 were for SOCL and social media stocks.
If pure price tag savings are what an investor is after and that investor does not want to dole out over $110 for a share of Facebook Inc (FB), SOCL is the perfect ETF to buy because the fund devotes 12.4% of its weight to shares of FB.
Throw in a 5.6% weight to Google parent Alphabet Inc (GOOG, GOOGL) and SOCL is a decent proxy on half of the FANG trade.
While internet and social media stocks are often believed to be expensive, SOCL currently does not reflect that thesis, as it sports a price-to-earnings ratio of just 6.2. The ETF is still volatile, however, with a standard deviation of nearly 22%, according to issuer data.
As of this writing, Todd Shriber did not own any of the aforementioned securities.
