While picking out an outperforming niche sector may be very satisfying, investors should also include broad core exchange traded fund holdings that stand up against changing market conditions.
The most “active” an average ETF investor will get is through regular rebalancing to hit a target asset allocation, writes Mitch Tuchman for Forbes.
Consequently, investors should focus on large and low-cost funds with a lot of liquidity for core allocations. These types of ETFs will provide diversification and are cheap to hold over a longer period of time.
For instance, Tuchman points out several funds that may provide suitable exposure to broad, diversified market indices.
iShares Russell 3000 Index (NYSEArca: IWV) tries to reflect the performance of the Russell 3000 index, which tracks the largest market capitalization-weighted U.S. stocks. The top holdings include Apple 2.5%, Exxon Mobil 2.1% and Microsoft 1.6%. Top sectors include financials 19.1%, tech 15.4% and consumer discretionary 14.7%. IWV has a 0.20% expense ratio.
iShares S&P Small Cap 600 Value Index (NYSEArca: IJS) follows the S&P 600 index with the lowest price-to-book ratios and represents about 50% of the S&P 600 index. Top holdings include Centene 1.0%, Proassurance 1.0% and Emcor Group 0.8%. Top sectors include financials 22.4%, industrials 18.2% and consumer discretionary 14.8%. IJS h as a 0.30% expense ratio. [A Look at Small-Cap ETFs Outclassing the S&P 500]
Vanguard Total Bond Market ETF (NYSEArca: BND) tracks the broad market weighted investment-grade bonds. The fund has a 5.5 year average duration. Top fixed-income sectors include U.S. Treasury 37.0%, corporate bonds 21.7% and agency MBS pass-through 21.5%. BND has a 0.10% expense ratio and a 2.07% 30-day SEC yield.
iShares MSCI EAFE Growth Index (NYSEArca: EFG) tracks the MSCI EAFE Growth Index, which provides exposure to developed Europe, Australasia and Far East markets. Top holdings include Nestle 3.6%, Roche Holdings 3.8% and Toyota 2.9%. Top Sectors include consumer staples 19.4%, consumer discretionary 16.5%, industrials 15.1%. EFG has a 0.40% expense ratio.
SPDR Dow Jones REIT (NYSEArca: RWR) follows the Dow Jones REIT index, which is comprised of various real estate investment trusts. Top holdings include Simon Property 10.8%, Public Storage 5.3% and HCP 4.4%. Top sub-sectors include regional malls 17.2%, apartments 16.7% and healthcare 14.7%. [Rising Interest Rates Pull REIT ETFs Toward Bear Market]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own IWV.