Ahead of significant variables and possible headwinds, investors may want to prep for whatever may arise through ownership of the best ETFs. Fundamentally, exchange-traded funds offer investors an efficient way to diversify their portfolios. By opening the canvas up to a basket of compelling stocks or bonds, market participants can cover immense ground.
Further, covering ground represents a critical need since we don’t know which way the equities sector will head. For instance, so far this year, the benchmark S&P 500 got off to an auspicious start on declining inflation data. However, the most recent print indicates that rising prices remain stubbornly high and above expectations. Therefore, the Federal Reserve may step in more aggressively moving forward. Of course, that wouldn’t be a great backdrop for risk-on-asset classes. However, a select few relevant sectors may benefit. Therefore, the best ETFs make plenty of sense during this ambiguous cycle.
|VTV||Vanguard Value Index Fund||$140.30|
|SCHD||Schwab US Dividend Equity||$74.87|
|XLU||Utilities Select Sector SPDR||$66.16|
|IYK||iShares US Consumer Staples||$195.21|
|ITA||iShares US Aerospace & Defense||$115.50|
|DBA||Invesco DB Agriculture||$20.24|
|VXUS||Vanguard Total International Stock Index||$54.19|
Vanguard Value Index Fund (VTV)
Focusing on large-capitalization companies, the Vanguard Value Index Fund (NYSEARCA:VTV) is a play on established businesses. Its top three holdings are Berkshire Hathaway (NYSE:BRK-B), Exxon Mobil (NYSE:XOM), and UnitedHealth Group (NYSE:UNH). In the trailing year, VTV slipped by 3% of market value. Though not a particularly great performance, it did beat the S&P 500’s loss of over 9% during the same period.
Looking at sector weightings, the Vanguard Value Index assigns the most weight toward financial services at 20.63%. However, healthcare comes in a very close second at 20.58%. Coming in third place stands industrials at 12.51%. Geographically, most of the securities (99.2%) hail from U.S.-based enterprises. According to U.S. News & World Report’s scorecard, VTV rates as “excellent” for costs, tracking error, and holdings diversity. At the moment, the ETF’s expense ratio sits at 0.04%, well below the category average of 0.38%. Therefore, VTV ranks among the best ETFs for concerned investors.
Schwab US Dividend Equity ETF (SCHD)
Another name among the best ETFs for large-value enterprises, Schwab US Dividend Equity ETF (NYSEARCA:SCHD) tracks the total return of the Dow Jones U.S. Dividend 100 Index. Its top holding is Broadcom (NASDAQ:AVGO) with a 4.51% share of total net assets. Rounding out the top three are Verizon Communications (NYSE:VZ) and Cisco Systems (NASDAQ:CSCO) at 4.29% and 4.15% of total net assets, respectively.
As with the Vanguard Value Index, the strength of SCHD centers on its relative performance. In the trailing year, SCHD declined by over 3%. While not inherently compelling, it fared better than the benchmark equities index. However, SCHD is off to a slow start in the new year, down about 1%. Primarily, this ETF heavily caters to financial services with a 21.6% weighting. Coming in second place is the industrials segment, representing 16.61% of the portfolio. A close third place stands the technology sector at 16.3%. Presently, the SCHD fund features an expense ratio of 0.06%, again well below the category average of 0.38%. Therefore, it’s a solid entry among the best ETFs for potential market turbulence.
Utilities Select Sector SPDR Fund (XLU)
Organically, the utility sector offers an excellent place to park one’s money during ambiguous cycles because of its natural monopoly. Basically, few enterprises can overcome the extremely high barrier to entry. However, it’s difficult to figure out which specific company offers the best chance of damage mitigation. Fortunately, the Utilities Select Sector SPDR Fund (NYSEARCA:XLU) takes out much of the guesswork.
At the moment, the XLU fund’s top holding is NextEra Energy (NYSE:NEE) at 15.12% of total net assets. Rounding out the top three are Duke Energy (NYSE:DUK) and Southern Company (NYSE:SO), representing 7.75% and 7.34% of net assets, respectively. Also worth mentioning is fourth place’s Sempra Energy (NYSE:SRE), which commands much of the lucrative Southern California market. Naturally, as a utilities-focused fund, 100% of the XLU centers on the namesake industry. As well, 100% of listed companies hail from the U.S.
Though it doesn’t rank as the strongest in terms of diversity of holdings, prospective investors will be pleased with the expense ratio of 0.10%. This ranks well below the category average of 0.42%, adding to its case for the best ETFs to buy.
iShares US Consumer Staples ETF (IYK)
No matter what happens in the equities sector or the wider economy, people need access to certain basic goods. As the coronavirus pandemic demonstrated, folks take such products for granted until a supply chain disruption confirms their vast utility. Given that this sector thereby enjoys inelastic demand, concerned investors should consider the iShares US Consumer Staples ETF (NYSARCA:IYK).
In terms of its top holdings, coming in the first place is consumer goods giant Procter & Gamble (NYSE:PG), with 15.4% of total net assets. Next comes PepsiCo (NASDAQ:PEP) at 11.35% of net assets, followed by rival Coca-Cola (NYSE:KO) at 10.92%. Also worth mentioning is global tobacco stalwart Philip Morris (NYSE:PM) with 7.24%.
Predominantly, of course, the IYK fund concentrates heavily on the consumer defensive sector. However, it’s not exclusive exposure at 87.85% of total weighting. In second place stands healthcare at 9.29%. A distant third place sits basic materials at 2.29%. To be fair, its expense ratio of 0.39% – while below the category average of 0.46% – stands a bit on the rich side. However, because IYK concentrates heavily on dividend-paying behemoths, it ranks among the best ETFs to buy.
iShares US Aerospace & Defense ETF (ITA)
While 2022 will go down as the year of historically high inflation, history will also remember it for the geopolitical crisis. Further, this year, the saber-rattling sparked in earnest. Moving forward, international conflicts and the role that the U.S. should play in them will likely be political catalysts. Because of this trend, investors may want to consider the defense-focused iShares US Aerospace & Defense ETF (BATS:ITA).
Presently, the ITA fund’s top holding is Raytheon Technology (NYSE:RTX), representing 20.56% of total net assets. Not too far behind stands Lockheed Martin (NYSE:LMT) at 15.56% of net assets. As well, Boeing (NYSE:BA) – which features both civilian and military relevancies – comes in third place at 8.04%.
As with other sector-focused names among the best ETFs, ITA doesn’t feature significant diversity. Specifically, 98.41% of holdings center on the industrials segment. Tech soaks up the remainder at 1.59%. Unsurprisingly given the sensitive nature of the industry, 100% of companies featured on ITA hail from the U.S. For full disclosure, ITA features an expense ratio of 0.39%, which while lower than the 0.46% category average still pings on the high side. However, the top two enterprises should garner significant relevance in the months and years ahead.
Invesco DB Agriculture Fund (DBA)
On a similar note to geopolitical flashpoints, the Invesco DB Agriculture Fund (NYSEARCA:DBA) may rank as one of the best ETFs to cover against unforeseen headwinds. Unfortunately, when military conflicts break out, it’s not just the immediate victims that suffer. Given the interconnectedness of the global economy, supply chains can break down.
Of course, one of the most critical supply chains involves agriculture. Good economy or bad, conflict or peace, humans need a modicum of nourishment for survival. Cynically, then, the DBA fund may rise on the pertinence of the underlying investment. Per its public profile, the DBA seeks to track changes in the level of the DBIQ Diversified Agriculture Index Excess Return.
Notably, the DBA differs from the other best ETFs on this list because it focuses on bonds. For instance, its top holding is U.S. Treasuries. In the trailing year, DBA dipped 2%. However, since the January opener, it gained nearly 2%. In fairness, the DBA features an expense ratio of 0.85%. That’s conspicuously higher than the category average of 0.65%. However, if you’re seeking protection, the DBA may be one of the best ETFs.
Vanguard Total International Stock Index Fund ETF (VXUS)
Generally speaking, it’s usually ideal to invest in industries and enterprises that you know. Naturally, the same sentiment applies to geography. However, some of the best ETFs concentrate on global markets. While they may attract more risk, the opportunities could be more robust. For the adventurous, then, the Vanguard Total International Stock Index Fund ETF (NASDAQ:VXUS) could be an intriguing idea.
A primary advantage of VXUS is that the fund features several foreign stocks, some of which are not accessible to U.S. investors. In terms of sector weightings, this ETF concentrates the most on the financial services sector with a weighting of 19.79%. Coming in second place is the industrials sector at 13.63%, followed by tech at 11.59%.
For geographic breakdown, the VXUS concentrates primarily in the Eurozone at 19.4%. The second and third places are tied at 15% each between Asian emerging markets and Japan. It also dedicates 1% to Africa, which represents a high-potential frontier market. Finally, the VXUS features an expense ratio of 0.07%, which ranks below the category average of 0.35%. Thus, it’s worth considering for best ETFs to buy.
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.