Top ETFs
16:23, 8 July 2024
ETFs, or exchange-traded funds, offer traders a versatile gateway into the financial markets. These ‘baskets’ of assets – traded on-exchange, like shares – track an entire index, sector, commodity, or other financial market. As a result, they enable traders to gain exposure to multiple assets in a single trade.
The thousands of ETFs available globally track everything from the sprawling US stock market to niche technological advancements. The appeal of ETFs lies not only in this wide scope, but also the efficient diversification they can offer.
Traditionally, a trader would have to take a position on multiple markets to diversify their portfolio. Using ETFs, you can diversify in a single trade. This also tends to help traders keep commissions and other charges down, though that varies by broker.
Of course, finding the best ETFs to trade will vary depending on your goals, available capital, risk appetite, and a range of other factors. Here, we look at five well-known ETF markets – but remember, past performance does not guarantee future results, and you should do your own research before trading.
Vanguard Total Stock Market ETF
By tracking the CRSP US Total Market Index, the Vanguard Total Stock Market ETF (VTI) provides exposure to the entire US equity market – including small-, mid-, and large-cap growth and value stocks.
The range of industries it encompasses can make the VTI a strong cornerstone for a diversified portfolio in a single fund. The breadth of the ETF's holdings ensures participants gain exposure to the whole market – streamlining the investment process while aiming for the total market's returns.
However, since the index that the VTI tracks is capitalisation-weighted, its large-cap stocks have a more significant impact on its performance than their smaller-cap cousins. This concentration can result in fewer diversification benefits from the smaller segments of the market, which sometimes offer higher growth potential.
The VTI includes leading US companies Berkshire Hathaway, Johnson and Johnson and Visa among its constituents, and so reflects the performance of the US economy at large.
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Invesco QQQ Trust
The Invesco QQQ Trust is a widely recognised ETF that mirrors the performance of the US Tech 100 Index.
The Invesco QQQ Trust offers traders targeted access to large-cap technology and innovation-driven companies. This includes key constituents like Apple, Amazon, Microsoft, and Alphabet (Google), making Invesco QQQ Trust a popular choice for those looking to capitalise on the growth of the technology sector and its leading players.
A potential disadvantage, however, is its heavy concentration in a single area. This can lead to higher volatility and risk, especially during market downturns in the tech industry.
Vanguard FTSE Developed Markets ETF
The Vanguard FTSE Developed Markets ETF (VEA) offers exposure to a wide array of stocks across developed markets outside of the United States, including Europe, Canada, Japan, and Australia.
By tracking the FTSE Developed All Cap ex US Index, the VEA enables traders to diversify their portfolio internationally with a single investment. Traders use the ETF in an attempt to access potential growth and stability in developed markets, and to mitigate the volatility associated with single-market investments.
That said, the ETF does create exposure to currency risk, where fluctuations in exchange rates can affect returns for US traders.
Constituents of the VEA include well-known companies like Nestle, Samsung and Toyota, representing a broad range of sectors from consumer goods to technology and automotive.
iShares Core MSCI Emerging Markets ETF
The iShares Core MSCI Emerging Markets ETF (IEMG) is designed to track the results of the MSCI Emerging Markets Investable Market Index, composed of large-, mid-, and small-cap emerging market equities. The ETF offers broad exposure to emerging market stocks in developing economies like Asia, Latin America, and Africa.
Some traders use the IEMG to diversify internationally with a focus on emerging markets, which may offer higher growth potential compared to developed markets. This can be an attractive proposition for those looking to increase their portfolio's risk-reward profile.
However, investing in emerging markets comes with increased volatility and risk due to factors like political instability, currency fluctuations and lower liquidity.
IEMG’s constituents span a diverse range of companies and sectors, including tech giants like Taiwan Semiconductor Manufacturing, e-commerce leader Alibaba and telecommunications company Tencent. This offers a reasonably comprehensive look into the financial landscape of the geographies covered by the ETF.
The Vanguard Total Bond Market ETF
The Vanguard Total Bond Market ETF (BND) is a fixed-income ETF that seeks to track the performance of the Bloomberg US Aggregate Float Adjusted Index. It provides broad exposure to US investment-grade bonds, spanning government, corporate, and municipal debt, as well as mortgage-backed securities.
Traders and investors use the BND for its diversification benefits – its broad exposure makes it a cornerstone for conservative investment strategies focused on capital preservation.
However, like all bond investments, BND is subject to interest rate risk; its value may decline as interest rates rise. Additionally, being focused on investment-grade bonds, it may offer lower yields compared to high-yield bonds.
The ETF’s constituents cover a broad array of issuers, including US Treasury bonds, government agency bonds, corporate bonds from leading companies, and mortgage-backed securities – it represents the entirety of the US investment-grade bond market.
FAQs
What are the top-performing ETFs?
To identify the ‘top-performing’ ETFs you need to examine a range of metrics like return on investment across your preferred time frame, liquidity, and volatility – and these will be constantly changing based on market factors.
We encourage you to conduct thorough research and consider your financial goals, risk tolerance and external market trends before trading an ETF. Given the multitude of strategies and sectors in the ETF universe, the best fit for one trader may not suit another.
How can I trade top-performing ETFs?
To trade on top-performing ETFs, you first need to conduct thorough research to determine whether or not they’re a suitable product for you. You’ll also want to consider things like your trading strategy ahead of time.
Once you’re happy that trading ETFs will help you meet your trading goals, you then find a broker that offers them – whether directly or via a derivative.
You can trade ETFs and a range of other markets on our platform, using CFDs or spread betting. Since derivatives like this offer access to leverage, which can magnify your gains and losses, it’s important to learn about these products before opening an account. Luckily, you can find out more with our in-depth market guides.
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