Here is your chance to weigh in on the selection of the Best-in- Class ETFs for each segment of the market.
It occurred to me as I was sifting through the 2,300 ETFs that are now available at the click of a button, that it might be helpful to come up with a list of the Best-in-Class for each of the main categories of assets.
Not being one who believes they have all the answers, it seemed logical for me to give this project a first-pass with my own picks, and then open it up to everyone within earshot to weigh in on their favorite picks.
What I hope to capture is a list that is far better than my first-pass, because there are people out there who know way more than I do about specific segments of the market. I hope to tap into this resource and share the results with all who participated.
How big can the ETF universe get?
According to Barron's, "Issuers are elbowing one another to attract ETF assets, spurred by increasingly aggressive estimates of just how large this part of the investment world could become. Jim Ross, chairman of State Street’s SPDR global business, says $25 trillion in seven years. Matteo Andreetto, former head of German index provider Stoxx and now SSGA’s EMEA ETF head, says: “I’m very comfortable with $15 trillion in five.”
As of today, ETFs have over $4 trillion in assets under management. The mutual fund universe has $16 trillion. And did you know that it has now become a thing for mutual fund managers to place ETFs in their actively managed portfolios, where they charge management fees that can be several times higher than the underlying ETF?
My first pass at creating a Best-in-Class list of ETFs
According to the best data sources I could find, there are roughly 50 categories of ETFs that are available for trading right now. That's way too many, unless you have all day to sort through the choices.
I started with the bigger asset classes, and picked my personal favorites for each. I have 10 categories so far, but I think we can reasonably expand that to 20 before we run into choice exhaustion.
I came up with three choices for each of the categories, for a total of 30 ETFs.
- Steady means the ETF tries to stay faithful to the index it tracks.
- Aggressive means the ETF tries to outperform its benchmark index.
- Defensive means the ETF tries to dampen the volatility a little.
My choices are far from perfect, which is why I'm asking you for your opinions.
Here is my first pass at the ETF list.
How to contribute
By now we're all familiar with what crowd-sourcing means. Many of you will have ideas about ETFs that might be a better choice for one or more of the categories in my first pass above. This is what I'm looking for.
Why should you spend any time weighing in on this? Because it will help raise the awareness of all investors who read these articles, and I will give anyone who makes a legitimate suggestion the proper attribution, including a link to their blog or website.
After a few iterations of this process, I will publish a final, but not permanent, version of the Best-in-Class ETFs for everyone to see.
Contact info
You can share your picks, with a brief statement of why you like them, by commenting on this article in the comments section below, or sending me an email through my website: my email is info@zeninvestor.org
Or you can reach me through SeekingAlpha
As I said earlier, this is a group effort, and all of us including me will benefit from the final results.
To see a complete list of the ETF universe I used for this article, click on the link below.
Hi George, and thanks for your input. You make an interesting point about CAPE being value oriented. I’m going to look deeper into the suitability of using it for the value category.
Thanks again,
Erik
Thanks, Jim. It’s good to hear from you. Your suggestions are exactly the kind of thing I was hoping to get. I will look at each of them and if something you came up with is a better choice than my first pass, I will make the change and credit you.
Best,
Erik
Hi Erik, these comments are just about the steady category:
I’d suggest VOO and/or IVV for US large cap because they don’t have the Unit Investment Trust structure that SPY has. They also both have lower expenses.
For non-US stocks I assume the intent of the category is to include emerging markets and small cap so it doesn’t duplicate other categories. I’d suggest VXUS or IXUS to save almost a full 1% on the expense ratio. Those 2 funds do have a higher weighted average market cap so that’s a trade off but the very high expense ratio of IFV is a gift that keeps on giving to First Trust even when their performance isn’t offsetting much, if any, of the difference.
For large, non-US stocks I’d again prefer a lower cost option and VEU fits the bill. I’m a little confused by DNL because its clearly a growth fund and has made clear sector and region bets, at least currently, so I’m not sure that strikes me as the most reliable way to track large cap non=US stocks in a steady and accurate manner, at least in theory.
For US Value there’s a lot of ways to skin that cat and the “best” answer, in my mind, depends on what each individual is trying to achieve. For general market cap weighted value, which IVE seems to be, I might prefer something like VOOV or VTV for their lower expense ratios. If someone wanted to eliminate the typical sector leanings of value funds they might be interested in something like VLUE. If looking for factor premiums then a factor weighted etf might be preferred, which VLUE also provides, and Schwab’s FNDX might be a little more pure and a bit more expensive.
I’m not quite sure I understand the purpose of the Aggressive and Defensive categories. I understand the definitions but most etfs try to track their benchmark index faithfully, rather than to exceed it, understanding that many etfs invent their own benchmarks for tracking purposes. At the same time the ones I checked seem to have higher expense ratios and/or very little volume, which normally wouldn’t make my cut for a recommendation but I’d have to give some more thought to the stated goal to make any alternative recommendations..
Eric, thanks for sharing this with regular investors. I have a suggestion for the U.S. value category. It’s actually on your list as a U.S. large cap pick, but it has a value orientation, so I use it as a value play.
It’s the Barclays Shiller CAPE ETN, ticker CAPE.
Hope this helps, and thanks again for reaching out to followers of your work.
George