My task today is to write about 10 ETFs to buy.
I could choose the candidates using standard selection criteria based on fees, market cap, total assets, length of service, sector, geography, and style; the list goes on.
I then thought about something I used to do when I first started writing for InvestorPlace in 2012. I would take five hot stocks from the previous week and develop ETFs to buy that owned the stocks.
However, rather than come up with 10 hot stocks from last week, I will use the 10 Best Stocks for 2021 to come up with my ETF selections.
The caveat is that some of the stock selections might not provide a good ETF alternative. In that case, I’d go to my plan B.
So, for example, if XYZ consumer defensive stock only has one ETF that owns the stock and at a weighting of 0.5% of the total portfolio, my plan B would be to recommend a worthwhile consumer defensive ETF to buy.
The important part of this kind of exercise is that it improves your idea generation for stock or ETF selection beyond the usual.
- VanEck Vectors Biotech ETF (NASDAQ:BBH)
- ARK Next Generation Internet ETF (NYSEARCA:ARKW)
- ProShares Online Retail ETF (NYSEARCA:ONLN)
- Invesco S&P SmallCap Consumer Discretionary ETF (NASDAQ:PSCD)
- Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSEARCA:RHS)
- First Trust NASDAQ Clean Edge Green Energy ETF (NASDAQ:QCLN)
- Global X MLP ETF (NYSEARCA:MLPA)
- Vanguard Dividend Appreciation ETF (NYSEARCA:VIG)
- SPDR S&P Aerospace & Defense ETF (NYSEARCA:XAR)
- US Global GO GOLD and Precious Metal Miners ETF (NYSEARCA:GOAU)
I hope you enjoy my picks.
ETFs to Buy: VanEck Vectors Biotech ETF (BBH)
BBH is my ETF substitute for OncoCyte (NYSEAMERICAN:OCX), a biotechnology company specializing in genetic testing for the early detection of cancer. OncoCyte is one of the two examples I mentioned where I’d have to go to a plan B.
The VanEck ETF tracks the MVIS US Listed Biotech 25 Index’s performance, a collection of 24 of the largest biotech stocks listed on a U.S. stock exchange. The ETF has $523.1 million in total assets. It charges 0.35% annually.
It’s got a three-year annualized total return of 15.3% through February 18. Year-to-date, it’s up 11.3%.
ARK Next Generation Internet ETF (ARKW)
ARKW is an ETF substitute for IZEA Worldwide (NASDAQ:IZEA), a Florida-based technology company that brings marketers and brands together with content creators to influence consumers’ buying habits. It’s one of InvestorPlace contributor Luke Lango’s top stocks to buy in 2021.
IZEA is the other example I mentioned where I’d go to a plan B.
ARKW is one of ARK Investment Management’s five actively-managed ETFs. ARK is run by Cathie Wood, one of the busiest portfolio managers on the planet and best known for her big bet on Tesla (NASDAQ:TSLA). Generally, she’s long on innovation and disruption.
ARKW bets on companies that are benefiting from the move to the cloud. The ETF was launched in September 2014. It has $5.3 billion in total assets and charges 0.79% annually. That’s pretty good for an actively-managed fund run by someone of Wood’s caliber.
The ETF’s number one holding is Tesla, with a weighting of 8.5%. Its top 10 holdings account for 40% of its overall portfolio. It’s got a three-year annualized total return of 60.7% through February 18. Year-to-date, it’s up 26.4%.
ProShares Online Retail ETF (ONLN)
ONLN is the ETF substitute for Fiverr International (NYSE:FVRR), an Israeli technology company that’s created an online platform for freelance creative types to hook up with companies to get stuff made. FVRR has more than 2.8 million customers in more than 160 countries buying services from these gig workers.
ONLN, as its name suggests, invests in companies that are benefiting from the move to online retail. Not surprisingly, its top holding is Amazon (NASDAQ:AMZN), with a weighting of 23.1%. Of the ETF’s 26 holdings, FVRR stock has a weighting of 1.2%, putting it near the bottom in the 20th spot.
Of the names on ONLN’s holdings list, I’ll say that I recommended at least seven of them, including Amazon, in 2020.
The ProShares ETF was launched in July 2018. It tracks the performance of the ProShares Online Retail Index. In 20 months, it’s grown its total assets to $1.4 billion. It charges 0.58% annually.
That’s reasonably fair given it’s got a one-year total return of 132.5% through Feb. 18. Year-to-date, it’s up 19.5%.
It’s also a way to bet on Amazon without betting the farm.
Invesco S&P SmallCap Consumer Discretionary ETF (PSCD)
PSCD is the ETF substitute for Bed Bath & Beyond (NASDAQ:BBBY), the home furnishings retailer that’s been undertaking a major turnaround over the past year under the stern hand of chief executive officer Mark Tritton.
CEO Tritton joined the struggling retailer in November 2019 after serving as the chief merchandising officer at Target (NYSE:TGT) for 3.5 years. As InvestorPlace’s Brett Kenwell said in his stock pick for 2021 writeup, “[T]he turnaround work that management is undertaking could make BBBY stock a massive winner over the next 12 months.”
Earlier this year, BBBY stock got caught up in the whole Reddit/Robinhood trading frenzy. At one point, it was trading at a 52-week high of $53.90. As I write this, it’s around half that amount.
PSCD protects you against such a possibility by investing in a diversified portfolio of 91 small-cap consumer discretionary stocks.
BBBY is a top 10 holding for PSCD, with a weighting of 2.31%. The stocks in PSCD’s portfolio range from a low of $71.5 million to $5.5 billion. In existence since April 2010, the ETF charges 0.29% annually.
The ETF has a three-year annualized total return of 19.7%. YTD, it’s up 22.9%, considerably higher than its consumer cyclical peers at 12.1%.
Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS)
Walgreens Boots Alliance (NASDAQ:WBA) made news in early February when it announced it was hiring Starbucks (NASDAQ:SBUX) Chief Operating Officer Rosalind Brewer as its new CEO. Brewer is the first Black woman to head a Fortune 500 company.
Highly thought of in corporate America, Brewer will be paid handsomely to get the country’s second-largest drug store chain growing again. In addition to a $4.5 million signing bonus, Brewer gets a long-term incentive award of $20.2 million, an annual salary of $1.5 million, and an annual cash bonus of up to 200% of her annual salary.
High-profile CEO hirings don’t often work. To protect against that happening, an investment in Invesco’s equal-weight consumer staples ETF gives you exposure to WBA stock plus a diversified portfolio of 33 S&P 500 consumer staples stocks besides.
Given this fund is equal-weighted and rebalanced quarterly, you start each quarter with a 3.33% WBA weighting. Where it goes from there is up to Roz Brewer and the rest of the management team.
Over the past three years, RHS delivered an annualized total return of 6.5%. That might not seem like much, but it was still considerably better than the -8.5% return for WBA.
It’s an excellent defensive play to balance your riskier bets.
First Trust NASDAQ Clean Edge Green Energy ETF (QCLN)
I don’t think there’s any question that Nio (NYSE:NIO) was one of the biggest surprises in 2020. It looked as though it might not make it through the spring at the beginning of last year. Then it got a billion dollars in funding, and it was off to the races.
If you still want to get in on the Nio action but fear you’ve missed the boat on its stock appreciation, First Trust’s QCLN clean energy ETF gives you excellent exposure to the electric vehicle (EV) manufacturer with a weighting of 6.7% of the fund’s $3.3 billion in total net assets.
Out of the 44 stocks in the portfolio, Nio is the fourth-largest position behind Tesla (NASDAQ:TSLA), Enphase Energy (NASDAQ:ENPH), and Plug Power (NASDAQ:PLUG). Not a loser in the bunch, if you ask me.
Heck, you could invest 50% of your funds in QCLN and 50% in RHS, and you’d have an excellent coffee-can portfolio on your hands.
Around since 2007, the move to alternative energy sources in recent years has really helped the ETF attract new money. In September 2018, QCLN had $91 million in net assets. In September 2020, they were $546 million. By September 2021, they could be over $4 billion.
Global X MLP ETF (MLPA)
If I wanted to gain energy exposure to mimic an energy infrastructure company akin to Enterprise Products Partners LP (NYSE:EPD), I’d probably do so through a broader index ETF, rather than Global X’s MLP ETF.
However, this article aims to mimic each of the best stocks to buy of the 10 InvestorPlace 2021 stockpickers. So I’m going with MLPA.
The ETF tracks the performance of the Solactive MLP Infrastructure Index. The fund invests in some of the biggest and most liquid midstream Master Limited Partnerships (MLPs). EPD is the second-largest holding with a weighting of 10.8%. Only Energy Transfer LP (NYSE:ET) is higher, at 11.1%.
As you can imagine, the ETF’s returns have been horrible the past three years. Its annualized total return is -10.9%. YTD, things are a lot brighter, up 12.7%.
MLPA’s been around since April 2012. Its net expense ratio of 0.46% is 26% less than what similar ETFs charge. Its 30-day SEC yield is a high 9.6%.
Also important is that you won’t have to deal with a Schedule K-1 that you’d get if you owned EPD directly.
Vanguard Dividend Appreciation ETF (VIG)
Owning Disney (NYSE:DIS) directly is awfully enticing given how its stock performed the past six months. Up 44% since August, the entertainment behemoth’s Disney+ video streaming service continues to outdo analyst expectations: in December 2020, it added eight million new subscribers; it’s fast approaching 100 million, well ahead of schedule.
If Disney were only a video streamer, the risk of owning directly wouldn’t be nearly as high. Unfortunately, it also operates several businesses that have been crushed by Covid-19 and may never return to pre-pandemic numbers.
For this reason, you could buy VIG, which tracks the performance of the NASDAQ US Dividend Achievers Select Index.
Charging a low 0.06% management fee, this fund invests in large-cap stocks that have historically grown dividends each year. Although Disney historically has paid a dividend, it stopped paying one in 2020 to preserve cash. It’s hard to know if it will resume paying one in 2021.
This 212-stock portfolio has Disney as the sixth-largest holding with a 3.43% weighting. VIG’s top 10 holdings account for 35% of the ETF’s $62.5 billion in total assets.
Performance-wise, VIG has performed in the middle of the pack over the past three years, up 13.0%.
SPDR S&P Aerospace & Defense ETF (XAR)
The modified equal-weight ETF gives investors exposure to some of the biggest aerospace and defense companies in the U.S. Launched in September 2011, XAR comprises 33 companies, one of which is Lockheed Martin (NYSE:LMT) at 3.3%.
The ETF tracks the performance of the S&P Aerospace & Defense Select Industry Index, one of 21 sub-indexes of the S&P Total Market Index, which is intended to track the broad U.S. equity market. Rebalanced four times a year in March, June, September and December, each of the stock’s in the portfolio starts a new quarter at 3.0%.
For example, Virgin Galactic (NYSE:SPCE), the largest holding at 5.36%, has added considerably to its 3% weighting through the first two months of Q1 2021. In the third week of March, it will be rebalanced back to 3%.
Thanks to Virgin Galactic, it’s off to a fast start in 2021, up 8.9%, 510 basis points higher than the S&P 1500 Industrials Total Return Index.
XAR charges a reasonable annual management fee of 0.35%.
US Global GO GOLD and Precious Metal Miners ETF (GOAU)
The 10th and final pick by our InvestorPlace stockpickers, Eric Fry, bet that gold would continue its hot streak in 2021. In 2020, an ounce of gold started the year at $1.519.50. By the end of the year, it was trading at $1,893.66, 25% higher. That followed a strong year in 2019, up almost 19%.
The last time the price of gold increased by double digits in a calendar year was 2010, in what was the ninth year of consecutive gains by the precious metal. You never know when gold’s going to lose its luster.
Down 6.2% YTD, Fry’s selection of Osisko Gold Royalties (NYSE:OR) has lost twice the amount two months into 2021.
How is GOAU doing in 2021? It has a YTD total return of -5.7%, slightly better than the price of gold.
If you’re looking to gain exposure to gold and precious metal producers, U.S. Global’s ETF gives you ownership in both the actual producers and companies such as Osisko Gold Royalties, that own revenue streams of companies that do operate mines.
Charging 0.60% annually, GOAU’s generated a three-year annualized total return of 17.3%, 586 basis points higher than the MSCI World Metals and Mining Index.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.