Investing in stocks can be lucrative, but for a lot of people, it can also be devastating — picking wrong can put a big dent in your nest egg.
Enter exchange-traded funds — baskets of securities collectively traded like stocks — which have a partial answer to that. While ETFs can still lose you money, they can also insulate you from losses.
If you were to invest in JPMorgan Chase & Co. (NYSE:JPM) and then JPM stock tanked on a bad headline or downgrade, you’d be out a lot of money. Conversely, if you invested in the Financial Select Sector SPDR Fund (NYSEARCA:XLF), those losses in JPM will be balanced out by the rest of the holdings staying aloft.
Of course, this can also work in reverse — a huge run for JPM won’t move XLF nearly as much. But for a lot of people, the safety and the access make ETFs a no-brainer. That made 2017 a banner year for the funds, with inflows increasing to $464 billion from $288 billion in 2016. And just like with stocks, there are winners and losers.
Which ETFs will be the winners in 2018? Well, our experts have some thoughts on that and have made their picks for the Best ETFs of 2018 contest. They are, in alphabetical order by ticker:
Best ETFs for 2018: iShares Emerging Markets Dividend ETF (DVYE)
Investor: Charles Sizemore
Expense Ratio: 0.49%
Emerging markets have been beaten down lately, but Charles Sizemore thinks that trend will pull up hard in 2018, which would make the iShares Emerging Markets Dividend ETF (NYSEARCA:DVYE) a great contender for the Best ETFs for 2018 contest winner.
To be exact, DVYE is not just about emerging markets, it’s about emerging market stocks that also offer dividends. As he says, “We get the ‘sizzle’ of emerging markets, but we’re getting a more stable and reliable subset of the emerging market universe.”
Meaning that if all goes well, DVYE will give investors a one-two punch of gains.
Best ETFs for 2018: ETFMG Video Game Tech ETF (GAMR)
Investor: Robert Waldo
Expense Ratio: 0.75%
I feel like I can already see some of you shaking your heads about the ETFMG Video Game Tech ETF (NYSEARCA:GAMR), dismissing it out of hand for being gimmicky or for kids. But as Robert Waldo says:
“Although a video game ETF might seem like something reserved for young, millennial investors, a glimpse at GAMR’s holdings will show you why this isn’t the case. When you break it down, this fund has something to offer any growth- or tech-minded investor.”
The fund spreads its money over a number of countries, in both software and hardware, and in companies of all size.
Gaming is a large and growing entertainment segment, especially as eSports grow, and GAMR can help investors make money on that trend.
Best ETFs for 2018: PowerShares Water Resource Portfolio (PHO)
Investor: James Brumley
Expense Ratio: 0.62%
Sometimes you don’t want to go to something brand new in order to capture big growth. As James Brumley writes, “Not every worthy investment has to be centered around a new technology though. Sometimes, old — even ancient — areas can yield a surprisingly big payoff.”
That’s what could help boost the PowerShares Water Resource Portfolio ETF (NASDAQ:PHO) to the top of the list.
PHO focuses on companies providing solutions to potable water problems — literally life-and-death work.
Best ETFs for 2018: PowerShares QQQ Trust ETF (QQQ)
Investor: Readers’ Choice
Expense ratio: 0.2%
Those looking to tech for 2018 but who don’t want to go 100% gung-ho in the sector can join our readers and root for the PowerShares QQQ Trust ETF (NASDAQ:QQQ).
The fund is almost 100% in U.S. stocks, which could be a blessing or a curse, depending on how the markets go this year. But if the promises of a business boom following the tax plan come to fruition, expect good things from QQQ.
And of course, a heavy weighting to the previously mentioned tech sector doesn’t hurt.
Best ETFs for 2018: Market Vectors Rare Earth Strat Met ETF (REMX)
Investor: John Jagerson and Wade Hansen
Expense Ratio: 0.61%
The reasons that these two investors chose to go with Vaneck Vectors Rare Earth Strategic Metals ETF (NYSEARCA:REMX) are twofold. As they put it:
“Two trends that have caught our eye are 1) the bullish shift in demand for and production of electric car batteries, and 2) the general increase in stock valuations.”
Because REMX focuses on the companies that supply the basic materials, like lithium, used in these endeavors, it’s in a great position as we step further into 2018.
They also say the technical picture is good as well, meaning 2018 could be a stellar year for this ETF.
Best ETFs for 2018: ALPS Medical Breakthroughs ETF (SBIO)
Investor: Todd Shriber
Expense Ratio: 0.5%
The healthcare sector, and especially biotech stocks, are looking for a comeback year in 2018.
And if you want to capitalize on that expected strength, Todd Shriber thinks you can’t do much better than with the ALPS Medical Breakthroughs ETF (NYSEARCA:SBIO).
The guidelines for getting into SBIO are pretty stringent. Not only do the companies have to have a stage II or stage III trial with the U.S. Food and Drug Administration, but also “SBIO components must have enough cash on hand to last 24 months at the current burn rate.”
Add to that a limited weight of just 4.5% per company each time it’s rebalanced and this EFT offers growth with a side of caution.
Best ETFs for 2018: VanEck Vectors Semiconductor ETF (SMH)
Investor: Dana Blankenhorn
Expense Ratio: 0.36%
The semiconductor sector has a gangbusters year in 2017, and Dana Blankenhorn is hoping that the trend continues in 2018. To that end, he’s backing the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH).
SMH isn’t doing anything too out there. As Blankenhorn says, “It’s not trying to find winners and dump losers for gains. It’s trying to mirror a specific industry, in this case semiconductors and equipment. Its managers will always “stay in their lane” — they won’t take a flyer on anything outside the group, and they won’t jump in with both feet on a move in any one stock.”
So if you’re thinking semiconductors continue to move up the charts in 2018, you may be in the SMH ETF’s corner.
Best ETFs for 2018: Vanguard FTSE All World Ex-U.S. Small Cap ETF (VSS)
Investor: Jeff Reeves
Expense Ratio: 0.13%
Sizemore isn’t the only person who thinks there are gains to be found in emerging markets. But where he was looking at dividend stocks in emerging markets, Jeff Reeves is looking toward small caps with the Vanguard FTSE All World Ex-U.S. Small Cap ETF (NYSEARCA:VSS).
The combination of small caps and emerging markets has the fund poised for immense gains if the cards fall right. Also, the sheer number of holdings in the ETF help you dip into this area with a bit more safety than gambling on individual securities.
As Reeves puts it, “you simply won’t get a better way to truly diversify your portfolio than this single fund. In one Vanguard ETF, you get emerging markets PLUS developed global markets outside America PLUS small cap exposure in those markets.”
Best ETFs for 2018: SPDR S&P Biotech (ETF) (XBI)
Investor: Johnson Research Group
Expense Ratio: 0.35%
Healthcare is also a focal point for Chris Johnson of Johnson Research Group. He sees the SPDR S&P Biotech (ETF) (NYSEARCA:XBI) as being on of this year’s hottest ETFs.
The XBI covered the gamut of market caps but leans toward the small side, with large-cap stocks making up more than 10% and small- and micro-cap stocks accounting for well over half of the fund. All of the XBI’s over 100 holdings come from North America.
And with an expense ratio of 0.35% and trailing total returns that are in the double digits in the one-, three-, five- and 10-year spans, it has a history of strength without costing an arm and a leg.
Best ETFs for 2018: Energy Select Sector SPDR (XLE)
Investor: Kent Thune
Expense Ratio: 0.14%
Energy is ubiquitous, and while the sector has had its troubles in the past few years, Kent Thune believes that the Energy Select Sector SPDR (NYSEARCA:XLE) has what it takes to win the prize in the inaugural Best ETFs contest.
As Thune wrote, “In summary, XLE has a strong combination of contrarian bet and momentum play that often makes for the best ETFs during a calendar year.”
With a low expense ratio and more stability in the oil markets, XLE can certainly
Jessica Loder is an assistant editor at InvestorPlace.com. As of this writing, she did not hold a position in any of the aforementioned securities.