According to exchange-traded fund research firm ETFGI, there are 1,876 ETFs to buy in the U.S. as of the end February. Collectively, they total $3.4 trillion in assets under management, are listed on three exchanges and are provided by 118 companies.
Add in ETNs and all other exchange-traded products and the number jumps to 2,181 ETPs with $3.5 billion in AUM provided by 136 companies.
I don’t know about you, but I feel that’s way too many options for the average investor. Psychologist Barry Schwartz calls this “choice overload.”
As he defines it: “As the number of options increases, the costs, in time and effort, of gathering the information needed to make a good choice also increase … The level of certainty people have about their choice decreases. And the anticipation that they will regret their choice increases.”
Perhaps that’s why Warren Buffett recommends most people buy an S&P 500 ETF and call it a day.
That’s one way to go.
Another option — like picking the winning horse in a race by the best looking jockey silks — is to go with the ETFs with the best tickers.
Admittedly, it’s not very scientific, but I can assure that all seven ETFs to buy that are listed below will get you to the retirement finish line healthy, wealthy and wise.
ETFs to Buy: Global X Founder-Run Companies ETF (BOSS)
Global X has some of the best ETF tickers on the market.
One of those I believe will do well over the next few years is the Global X Founder-Run Companies ETF, or “BOSS” — a perfect acronym for what this fund is trying to accomplish. BOSS aims to own approximately the 100 largest U.S. companies whose CEO is also a founder.
If you’re a fan of Richard Branson or Jeff Bezos or Warren Buffett, it’s easy to understand the thinking behind BOSS. Who better to run a modern-day company than the man or woman who founded it? A hired gun’s never going to be as passionate about the business as the founder will be providing you with greater assurances that your money’s in good hands.
While BOSS is only a year old and it has attracted just $3.8 million in assets, its performance to date has been good, up 21.6%. Not surprisingly, almost 50% of the holdings are in technology and healthcare — two of the fastest growing and most important sectors of the economy.
ETFs to Buy: BUZZ U.S. Sentiment Leaders ETF (BUZ)
It’s probably not the best time to be recommending a social media-related ETF given what’s happening to Facebook, Inc. (NASDAQ:FB), but the premise behind the BUZZ U.S. Sentiment Leaders ETF (NYSEARCA:BUZ) is a solid one.
BUZZ tracks the performance of the BUZZ NextGen AI US Sentiment Leaders Index, a collection of 75 stocks that are getting the most social media buzz, hence the name and symbol. Reconstituted and rebalanced monthly, it’s not surprising that the management expense ratio is 0.75%. Big data costs money and manpower.
The weighting of the 75 holdings is based on a proprietary scoring model that ranks all U.S. listed stocks for positive insights gleaned from social media. To qualify, they must have a market cap greater than $5 billion and three-month average trading volume of $1 million or higher. After each rebalancing, no stock may have a weighting greater than 3%.
A couple of years old come April, it has managed to pull down $14 million in total assets despite the higher MER. One reason it has gained some traction could be its performance so far in its young life, up 23% in 2017 and another 10% year-to-date through March 21.
ETFs to Buy: Reality Shares DIVS ETF (DIVY)
It’s not the biggest dividend ETF, but the Reality Shares DIVS ETF (NYSE:ARCA:DIVY) just might be one of the best. Morningstar gives it five stars and although I said I wasn’t going to include any ETF with an MER over 0.75%, I just couldn’t pass up this actively managed dividend ETF.
The DIVY ticker symbol leaves no doubt what the fund’s investment objective is; despite the great symbol, it has only managed to corral $68 million in AUM since its inception in December 2014. No matter. If you like dividends, this might be the ETF for you.
You’ll notice as you find your way through the ETF’s website that it doesn’t actually invest in any stocks or ETFs. Instead, it uses derivatives, swaps and futures to generate returns based on dividend growth rather than capital appreciation. When companies in the S&P 500 raise their quarterly dividend, the ETF’s value goes up.
“The Fund generally invests in a combination of dividend swaps, dividend futures and forwards on indexes of Large Cap Securities,” states the DIVY prospectus.
It might seem complicated but it’s really designed to limit one’s downside risk while generating a decent return. Since inception, it has averaged an annual return of 6.5% through the end of February.
In a down market, this will be a very popular ETF.
ETFs to Buy: The First Trust Global Wind Energy (ETF) (FAN)
This next ETF could either be a sports-related product — something I’d love to see — or in some way dealing with the issue of energy. The First Trust Global Wind Energy (ETF) (NYSEASRCA:FAN) is the latter.
Around since 2008, the ETF is still relatively obscure with just $87 million in AUM. I’ve always been a fan (no pun intended) of First Trust ETFs so I hope it can crack $100 million in short order.
The ETF invests in companies involved in the wind energy industry. Two-thirds of the assets are invested in pure-play wind energy companies, most of which are listed in Europe or in Asia, and the remaining third is invested in companies with some interest in the wind-energy industry. The top five holdings get an 8% cap with the remaining pure plays a 4% cap and 2% for the non-pure plays.
Since 2012, FAN’s performance has been exceptional, averaging 15% annually with a lion’s share of the gains in 2013 when it generated an annual return of 65%.
If you believe in the elimination of fossil fuels, this is an ETF you want to own.
ETFs to Buy: First Trust Nasdaq Smartphone Index Fund (FONE)
I just couldn’t get enough of First Trust ETFs so I’m back for a second selection.
This time I’m interested in the First Trust Nasdaq Smartphone Index Fund (NASDAQ:FONE), which tracks the performance of the Nasdaq CTA Smartphone Index; for those unaware, CTA stands for Consumer Technology Association, the trade group representing the consumer technology industry in Washington.
If anyone knows smartphones, it would be them.
Anyway, FONE is another one of these tiny ETFs that has been around a long time — February 17, 2011 inception date — and managed to survive despite a relatively high MER of 0.70%.
To qualify for inclusion in the index a company must be considered to be operating in the smartphone industry by the CTA. It also must have a market cap of at least $250 million, at least 20% free float and $1 million in average daily volume over the last three months.
Once that’s done, the companies are divided into three segments: Handsets, Software Applications and Hardware Components and Network Providers. Each of the first two segments accounts for 45% of the portfolio with Network Providers accounting for the remaining 10%.
Within each segment, the holdings are equally weighted with rebalancing every quarter and reconstitution semi-annually.
With a total of 50 holdings, FONE has achieved a five-year annual return of 17%. Sure, smartphones have become rather ordinary, but we still need them. As long as there are people, there likely will be smartphones.
ETFs to Buy: First Trust Cloud Computing ETF (SKYY)
If you don’t learn anything else from this article — I hope that’s not the case — it’s that First Trust and Global X have cornered the market on subject-appropriate ETF tickers. Perhaps that’s because both providers specialize in thematic investing, an ideal subject matter for snappy fund names and tickers, but it also speaks to their desire to make investing a bit more fun.
I’d be remiss if I didn’t include the First Trust Cloud Computing ETF (NASDAQ:SKYY) in a list of seven ETFs to buy with great tickers. SKYYs a great ticker and if you don’t like the ETF you can always buy the vodka by the same name.
Unlike the two previous ETFs around for more than five years — FAN and FONE — SKYY has amassed a relative fortune since its launch in July 2011 growing AUM to $1.4 billion. Given the growth in cloud computing in recent years, it’s no surprise the ETFs got as big as it has.
Like FONE, it segregates the ETFs holdings into three silos: Pure Play Cloud Computing Companies, Non-Pure Play Computing Companies, and Technology Conglomerate Cloud Computing Companies. Technology conglomerates are equally weighted and account for 10% of the portfolio. The non-pure plays’ weighting is whatever its market cap is divided by the market cap of all 30 holdings and the pure play’s weighting is the remainder.
So, if non-pure plays account for another 25%, pure plays are weighted at 75%.
All 30 stocks are equally weighted within their silos; reconstituted and rebalanced semi-annually. SKYY hasn’t had a negative return since inception and is up 10% year-to-date.
Unless someone invents some other way of keeping data safe, this ETF is going to keep going up. At 0.60%, it’s very reasonable given the ongoing performance.
If I could only buy one, this one or the next one would be it.
ETFs to Buy: Vanguard Consumer Discretionary ETF (VCR)
Not only is the Vanguard Consumer Discretionary ETF (NYSEARCA:VCR) the largest of these seven ETF recommendations with $2.6 billion in AUM, it’s also the oldest at 14 years and counting. Plus, it’s the most diversified with 371 holdings, befitting an ETF stock ticker whose existence is going the way of the dodo bird.
As long as the economy is running smoothly, this is an ETF you can set on auto-pilot and sleep soundly at night. For those holding for the long-term, hold back some cash in reserve for those times when the economy is hurting a little bit. Over a 20-year period, you’ll make out like a bandit.
VCR hasn’t had a losing year since 2008 when it lost 38%, almost identical to the S&P 500. However, over the next ten years, it beat the index on annual basis by 448 basis points. At 0.10%, it’s a better option than any of the S&P 500 ETFs, including Vanguard’s.
There’s no need to say anything else about VCR. It just works.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.