No matter what the market conditions are, the hottest ETFs to buy will almost always make sense for investors. Fundamentally, these exchange-traded funds cover a basket of securities, thereby mitigating risk while enjoying broad upside opportunities. According to authors Larry Swedroe and Andrew Berkin, investors can replicate the strategy of buying high-quality stocks at low prices with compelling ETFs.
Further, they argue, “[y]ou don’t need to hire Warren Buffett or pay a hedge fund manager a 2% fee and 20% of the profits.” It’s not that they dismiss folks like Buffett, who has earned a much-deserved strong reputation for reliable guidance. Rather, not everyone enjoys access to such expertise. For the regular folks, the hottest ETFs to buy offer the performance of professional advice but without the costs.
Plus, we’re entering uncharted territory. With the post-coronavirus new normal sparking myriad challenges, we just don’t know what lies ahead. Therefore, merely betting on individual stocks presents risks. To lessen downside exposure, the below hottest ETFs to buy for 2023 provide a critical solution.
|XLE||Energy Select Sector SPDR Fund||$89.90|
|VPU||Vanguard Utilities Index Fund ETF||$156.39|
|YUMY||VanEck Future of Food ETF||$18.95|
|XAR||SPDR S&P Aerospace & Defense ETF||$115.49|
|SCHD||Schwab US Dividend Equity ETF||$77.68|
|QQQ||Invesco QQQ Trust Series 1||$278.24|
|VWO||Vanguard Emerging Markets Stock Index Fund ETF||$41.82|
Energy Select Sector SPDR Fund (XLE)
One of the best-performing names among the hottest ETFs to buy in the new year, Energy Select Sector SPDR Fund (NYSEARCA:XLE) inherently delivers plenty of relevance. However, last year, Russia’s invasion of Ukraine along with the aggressor’s cutting of energy resources to the west sparked a radical geopolitical paradigm shift.
Put simply, Russia might not return as a respected member of the international community for quite some time. At the same time, Europe and other energy-dependent regions must scour for alternative sources. Cynically, this dynamic should bolster XLE as one of the hottest ETFs to buy in 2023. If anything, the fund gained over 39% in the trailing year, reflecting strong demand. Currently, the top three holdings for XLE are Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Schlumberger (NYSE:SLB). It’s also worth noting that the fund includes downstream specialist Phillips 66 (NYSE:PSX). Should societal circumstances fully return to normal, traffic volume may spike, boosting downstream units. Finally, XLE features a very low expense ratio of 0.10% (much lower than the category average of 0.46%).
Vanguard Utilities Index Fund ETF (VPU)
Heading into an uncertain environment in 2023, investors will likely take comfort in Vanguard Utilities Index Fund ETF (NYSEARCA:VPU). As I’ve expressed many times before, people expect the lights to turn on when they flip the switch. Unfortunately, when nothing happens during this otherwise mundane exercise, circumstances may go awry.
On a much lighter note (though hardly any less cynical), public utility firms benefit from inelastic demand. Enterprises that enjoy inelastic demand see consistent and predictable revenue irrespective of pricing fluctuations. For utilities, everybody needs access to a certain amount of critical resources. Therefore, VPU should be a dependable name among the hottest ETFs to buy. In the trailing year, it gained over 3% of market value.
Currently, Vanguard Utilities Index’s top three holdings are NextEra Energy (NYSE:NEE), Duke Energy (NYSE:DUK) and Southern Company (NYSE:SO). Also, VPU offers low costs, with an expense ratio of 0.10%. In contrast, the category average stands at 0.42%.
VanEck Future of Food ETF (YUMY)
If you’re worried about what the new year might bring, VanEck Future of Food ETF (NYSEARCA:YUMY) may be the most appropriate entry among the hottest ETFs to buy. Obviously, everyone needs to eat. Generally, public health authorities recommend 2,000 calories daily for women and 2,500 for men.
As with the utility sector, the broader food and agricultural industry enjoys inelastic demand. Admittedly, few sectors enjoy perfect inelasticity. As economic conditions justify, people will adjust their consumption of goods (necessary or discretionary) accordingly. However, at the baseline of consumption (i.e. minimum calorie intake), the food sector commands consistent sales. It is what it is.
Presently, VanEck Future of Food’s top three holdings includes Deere (NYSE:DE), Corteva (NYSE:CTVA), and Ingredion (NYSE:INGR). Geographically, most of the held companies are located in the U.S. However, a significant portion stems from Europe. Although relevant, YUMY does feature a higher cost, with an expense ratio of 0.69%. In contrast, the category average pings at 0.46%. Still, the importance of food and agriculture may lift YUMY later this year.
SPDR S&P Aerospace & Defense ETF (XAR)
While Russian aggression in Ukraine isn’t our fight per se, in arguably most ways, it is. Unfortunately, the reality is that if Russia (or any belligerent state actor) accrues rewards for their imperialistic ambitions, it facilitates a green light for other dangerous entities. Geopolitically, then, when freedom falls under threat, the embattled cry out for Dad.
In this case, Dad is the U.S. and his instruments of discipline can be found among the individual holdings of SPDR S&P Aerospace & Defense ETF (NYSEARCA:XAR). To be fair, XAR slipped nearly 4% in the trailing year. However, in the trailing half-year period, the fund gained a solid 13% of market value. Therefore, in recent months, it’s been one of the hottest ETFs to buy.
No wonder. It’s not just Russia causing consternation for the international community. Along with our constant rivalry with China, both North Korea and Iran made their presence known. Therefore, it almost seems inevitable that XAR will rise. Right now, XAR isn’t terribly costly with an expense ratio of 0.35%. The category average stands at 0.48%.
Schwab US Dividend Equity ETF (SCHD)
Although picking individual stocks may represent the most exciting market endeavor, in 2023, too many risks exist. And that’s why passive-income-providing enterprises may be more appropriate. For those not too sure of what may happen next, the Schwab US Dividend Equity ETF (NYSEARCA:SCHD) may be a great candidate for the hottest ETFs to buy.
Again, it’s not so much that dividends are “hot.” Rather, investors must consider the reality of the current market environment. With the real M2 money stock skyrocketing at the start of the Covid-19 pandemic, the Federal Reserve has a tough job ahead in reeling in prior monetary excesses. Subsequently, the central bank’s hawkish policy will disincentivize many growth names.
Moving forward, the market may reward stability, established track records, and value over growth-oriented attributes. Therefore, SCHD deserves special consideration. While the fund did suffer red ink in the trailing year, it’s up 2.5% in the trailing five sessions. Finally, SCHD is cheap, with an expense ratio of 0.06%. In contrast, the category average stands at 0.39%.
Invesco QQQ Trust Series 1 (QQQ)
One of the worst-hit segments last year was the broader technology sector. As multiple sources mentioned, the global supply chain disruption that sparked during the Covid-19 crisis devastated the semiconductor industry. In turn, several tech companies couldn’t meet demand because of a lack of inventory. Still, I think big tech may be due for a comeback. If so, you’ll want to own Invesco QQQ Trust Series 1 (NASDAQ:QQQ).
To be fair, QQQ took it on the chin as well in 2022. In the trailing year, the fund gave up over 28% of its market value. However, circumstances appear to be improving recently. In the past five sessions, QQQ gained over 5%. Moving forward, societal normalization may help lift the broader tech ecosystem, particularly as supply chains finally normalize.
Currently, the fund’s top three holdings are Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN). All three companies command relevant businesses and they’re all undervalued relative to prior highs. However, spreading out the risk across several compelling innovators may be the smarter choice (than individual wagers). Also, QQQ is one of the cheaper names among the hottest ETFs to buy with an expense ratio of 0.20%. This compares favorably to the category average of 0.54%.
Vanguard Emerging Markets (VWO)
Finally, on this list of hottest ETFs to buy, adventurous investors may want to go abroad with their portfolio. If so, the Vanguard Emerging Markets (NYSEARCA:VWO) fund provides an excellent low-cost opportunity. While most financial advisors will direct you to U.S.-based public companies, the underlying economy is a mature one. For substantial gains, you’ll need to explore developing regions.
To be fair, going this route means greater risks. In the trailing year, for instance, VWO lost almost 19% of its market value. While that might deter some prospective buyers, consider this: in the trailing month, VWO moved up 4%. As the domestic market possibly begins favoring value over growth, investors will have more incentives to hit the international market.
Currently, VWO’s top three industry holdings are financial services (a weighting of 21.27%), technology (15.96%), and consumer cyclical (13.32%). On a parting note, VWO is cheap, featuring an expense ratio of 0.08%. This compares very favorably to the category average of 0.47%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.