In November 2020, more than $400 billion in new funds flowed into the exchange-traded fund (ETF) industry, only the second time to do that in a single year. By that point, the ETF industry surpassed $5 trillion in assets under management (AUM) in the U.S. A big reason was the ongoing success of some of the biggest ETFs in the industry. 

Even though there were approximately 2,204 ETFs in the U.S., up from 902 a decade earlier, the biggest ETFs continue to suck up most of the new money, leaving table scraps for the rest. 

In November 2019, CNBC reported that a few funds controlled most of the action. 

“The rush to ETFs, while powerful, has also been fairly narrow, according to ETF expert ETFGI. The top 10 ETFs trading on U.S. exchanges account for 28% of total U.S. assets under management, with the top 20 U.S. ETFs accounting for nearly 40% of assets in the space,” CNBC contributor Lizzy Gurdus wrote.

But not all the biggest ETFs were winners last year. One of the losers was the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), the largest ETF with $367.1 billion AUM. It saw a $24.6 billion outflow last year. The fund gained 13.5% for the year, and 65.4% from the March 23, 2020 pandemic low.

Nonetheless, the biggest ETFs grab most of the action. 

• Vanguard Total Stock Market Index Fund ETF Shares (NYSEARCA:VTI)
• Invesco QQQ Trust (NASDAQ:QQQ)
• iShares Core MSCI EAFE ETF (NYSEARCA:IEFA)
• iShares Core U.S. Aggregate Bond ETF (NYSEARCA:AGG)
• Vanguard FTSE Emerging Markets Index Fund ETF Shares (NYSEARCA:VWO)
• iShares Russell 2000 ETF (NYSEARCA:IWM)
• iShares Core S&P Midcap ETF (NYSEARCA:IJH)

But which ones to own? Well, if I had to own seven of the top 20 by AUM, these are the ones I’d buy.

Biggest ETFs to Buy: Vanguard Total Stock Market ETF (VTI)

As I said in the introduction, VTI has been on a roll over the past year. It’s easy to see why. The ETF has a one-year total return of 54.1% through May 4. That’s actually 1.6% higher than the Russell 1000 Total Return Index. 

The key feature of VTI is the fact that it tracks the performance of the CRSP US Total Market Index, which covers approximately 100% of the investable U.S. stock market. While it skews to large market capitalization stocks — large-caps account for 70% of its $224.2 billion in AUM — mid-caps and small-caps do make up the remaining 30%. 

The top 10 holdings account for 22.1% of the portfolio, so to a certain extent, it is a bet on Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), etc. The top three sectors by weighting are technology (25.5%), consumer discretionary (16.4%), and industrials (14.2%).

Given how well the U.S. markets have done in recent years, the total exposure gained for just 3 cents on every $100 investment is hard to beat. If you’ve got a life beyond overseeing your portfolio, this is the ETF to own.

Invesco QQQ Trust (QQQ)

I don’t think there’s any question that investors consider Invesco QQQ Trust a core ETF to cover your bases in technology quickly. While it’s officially the 100 largest non-financial stocks listed on Nasdaq, it’s been a “proxy” for technology for many years.

Over the past 10 years, QQQ stock is the best-performing large-cap growth fund as of March 31, out of 440. In pure numbers, that’s an annualized total return of 20.1%. You can’t get much better than that.

Now, admittedly, a tremendous number of laser-focused tech ETFs have been introduced into the marketplace in the 22 years it’s been around, providing a lot more competition than when it was launched in March 1999. However, it’s definitely still got a place in an investor’s core portfolio.

In terms of its 102 holdings, 47.4% of its $158.8 billion in AUM is invested in tech stocks. Communication services and consumer discretionary stocks are the second- and third-largest sectors by weight with 19.8% and 18.3%, respectively. Its top 10 holdings account for 52.2% of the portfolio.  

If low fees are important to you, QQQ charges 0.2% annually. Six of its top 10 holdings are the same as VTI, albeit with greater weightings. 

QQQ is especially good for do-it-yourself stock investors who don’t want to spend a lot of time on technology stocks but want the exposure just the same.

iShares Core MSCI EAFE ETF (IEFA)

Over the years, I’ve written several articles about the concept of home-country bias. No matter where you live, it’s natural to favor those companies closest to where you live that you are more familiar with. That’s why iShares Core MSCI EAFE ETF is on this list.

I live in Canada, which makes up a tiny piece of the global markets, so I have to keep in mind that I always need to reach beyond my own borders to secure better portfolio performance over the long haul. If you live in the U.S., like most of our readers, you can get away with home-country bias because the U.S. makes up close to 50% of the global markets. 

If you’re interested in international ETFs, I wrote about these seven in September 2020. For this article, I opted to pass over the Vanguard FTSE Developed Markets Index Fund ETF Shares (NYSEARCA:VEA) and go for IEFA, a slightly more-focused ETF.

So, for example, VEA’s top three countries by weight are Japan (22.0%), U.K. (12.8%) and Canada (8.8%). IEFA’s top three are Japan (24.0%), U.K. (14.9%) and France (10.2%). 

The biggest difference between the two ETFs is the number of holdings. VEA has 4,045, while IEFA holds 2,825. Otherwise, they’re very similar. IEFA charges four basis points more than VEA at 0.07%. 

If you want to avoid home-country bias, you’ll include a sliver of one of these in your portfolio.

iShares Aggregate Bond ETF (AGG)

There is no question that bond ETFs have gained a terrible reputation in recent years. Impending inflation has accelerated the doom-and-gloom. According to Bloomberg, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD) lost $7.4 billion in a six-week stretch from the beginning of 2021 through Feb. 22. 

“Flows follow returns,” said Michael Contopoulos, director of fixed income and portfolio manager at Richard Bernstein Advisors. “With the increase in Treasury yields, we’ve had a very poor period of total returns in investment-grade credit and government bonds.”

So, why should you hold iShares Aggregate Bond ETF in your portfolio if bond funds are getting slaughtered by higher yields and lower prices? 

For one, because AGG stock the only bond ETF in the top 10 ETFs by assets. It’s there for a reason.

“The decline in bond prices so far in 2021 is a reminder that it’s not normal for everything in your portfolio to be humming along at the same time. Both bonds and stocks had a very solid year in 2020, but stocks are up now and bonds are down. In a flash, that trend could reverse itself,” stated Rob Carrick, The Globe and Mail’s excellent personal finance columnist in February.

You don’t have to allocate more than 10-15% in your overall portfolio. However, from where I sit, it still makes sense to diversify asset classes.

Vanguard FTSE Emerging Markets ETF (VWO)

The Vanguard FTSE Emerging Markets ETF tracks the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. Although China accounts for 40.9% of the ETF’s 5,202 holdings, it is invested in more than 20 emerging markets, including Taiwan (17.7%), India (12.1%), Brazil (5.2%), and South Africa (4.44%).

Another thing you’ll notice about VWO stock is that the fifth-largest holding is Naspers (OTCMKTS:NPSNY), which is based in South Africa, while the sixth-largest is Reliance Industries, an Indian conglomerate. 

Recently, Lazard Asset Management provided an optimistic outlook on emerging markets in 2021. 

“Our outlook for emerging markets equities overall remains positive in anticipation of a stronger rebound in global growth over 2021. Interest rates remain a factor to watch closely, however,” stated the Lazard report. 

To give you an idea of how much weighting to give emerging markets, the iShares Core Conservative Allocation ETF (NYSEARCA:AOK) gives them a 3.4% weighting. In comparison, iShares Core Aggressive Allocation ETF (NYSEARCA:AOA) gives emerging markets a 9.1% weighting.

iShares Russell 2000 ETF (IWM)

The iShares Russell 2000 ETF tracks the performance of the Russell 2000 Index, a collection of small-cap stocks that represents 7% of the U.S. market cap. 

It is a sub-set of the Russell 3000 Index. IWM stock’s stablemate — iShares Russell 1000 ETF (NYSEARCA:IWB) — covers 93% of U.S. market caps. Together, they are represented by the iShares Russell 3000 ETF (NYSEARCA:IWV). IWV would compete with the VTI for assets. 

I went with IWM because it always pays to have smaller stocks in your portfolio. After all, like bonds, they often perform at different times than large-cap equities. It’s pulled in $67.7 billion in assets to date for the simple reason that it gets the job done, covering the smaller end of the stock spectrum. 

In its top 10 holdings, there are at least four companies I would consider buying for any stock portfolio, including the stock formerly known as Restoration Hardware, RH (NYSE:RH), and Deckers Outdoor (NYSE:DECK).

Over the past year, it has a total return of 79.8%. Year-to-date, it’s up a healthy 14.1%. While there will be periods of underperformance, some of the companies held in this ETF grow up to be the Amazon’s (NASDAQ:AMZN) of the world. 

Like bonds and emerging markets, it doesn’t have to be a large piece of your portfolio — just something to add some oomph to long-term performance.

iShares Core S&P Midcap ETF (IJH)

Any well-constructed ETF portfolio ought to have a mid-cap in its midst. The iShares Core S&P Midcap ETF fits that bill.

In September 2015, S&P Dow Jones Indices published a think piece entitled Mid-Cap: A Sweet Spot for Performance. Page four of its report discussed a study of the average monthly performance of the S&P 500 and S&P MidCap 400 from July 1991 to August 2015. It found that during this time, the small-cap index averaged a monthly return of 3.59% in the up months, 38 basis points higher than the S&P 500, and virtually the same monthly performance — minus 3.54% versus minus 3.55% for the S&P 500 — in the down months.

“Compared with the large-cap segment, mid caps delivered better returns in most sectors with comparatively lower risk during the periods studied,” the report concluded. 

It just so happens that IJH tracks the performance of the S&P MidCap 400 Index.  

So, how has IJH performed since Sept. 1, 2015? It’s up 90% over the last 68 months. That’s a compound annual growth rate of 12.0%. I’ll gladly take this kind of five-year return. 

And it only costs you a nickel for every $100 invested.  

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.