As we embark on 2023, the tumultuous waves of the previous year have yet to calm as investors continue to struggle and weigh the possible scenarios.
While there are signs of the Fed shifting towards a less aggressive policy amid subsiding inflationary pressure, inflation still remains at historic highs. To put it simply, the worst may have passed but looming financial and geopolitical hurdles continue to cast a shadow on investors’ confidence, leaving many to question what the future holds.
In such uncertain times, savvy investors can find refuge in low-risk, diversified funds to secure potential long-term returns. This article lists 3 promising exchange-traded-funds (ETFs) that should be on your watchlist in 2023, considering their capacity to explode over time.
1. iShares Core S&P 500 ETF (IVV)
Expense ratio: 0.03%
iShares Core S&P 500 is a highly sought-after fund that tracks the investment results of the world-renowned S&P 500 Index. The S&P 500, otherwise known as the Standard & Poor’s 500, is generally considered the ultimate barometer of the US stock market. This coveted stock index, owned by the joint venture S&P Dow Jones Indices, includes the 500 most prominent and established US companies which serve as a reliable gauge of the overall performance of US stocks.
The fund (IVV) typically allocates a minimum of 80% of its assets towards its benchmark index’s securities and investments with similar economic characteristics, while also reserving the option to invest up to 20% in various derivatives like futures, cash, and cash equivalents.
Note that when it comes to tracking S&P 500, the SPDR S&P 500 ETF Trust (SPY) is another popular fund that is the go-to choice for many investors. But we have deemed IVV as a better long-term pick due to its slightly lower fees (0.03% expense ratio compared to SPY’s 0.09%) despite using a similar strategy as the SPDR fund. We believe the iShares ETF may be a smart choice for those looking to invest for the long term.
As of now, IVV has nearly $302 billion in assets under management and 751 million shares outstanding. Further, its Price-to-earnings and Price-to-book values stand at 19.50 and 3.67, respectively. Regarding the fund’s performance, its NAV has surged 4.78% year-to-date.
As per the iShares official factsheet, IVV has shown a cumulative total return of 24.6% in 3-y and 56.6% in 5-y till December 31, 2022.
The fund boasts an impressive portfolio featuring 503 holdings, with the largest share allocated to Information Technology, followed by Healthcare and Financials. IVV’s top five spots are held by:
- Apple Inc.
- Microsoft Corp.
- Amazon Inc
- Alphabet Inc (Class A)
- Berkshire Hathaway Inc
2. Vanguard Value ETF (VTV)
Expense ratio: 0.04%
As market instability reigns, a large number of investors are flocking to the safe haven of value investments, and Vanguard Value ETF has emerged as a leading choice among them.
VTV seeks to track the CRSP US Large Cap Value Index, which is a broadly diversified index predominantly made up of value stocks of large US companies. The fund endeavors to mirror the performance of the target index by investing most, if not all, of its assets in the stocks that constitute the index, maintaining a similar proportion of each stock as its weight in the index.
Founded in 2004, the ETF now holds $148 billion in total assets with an earnings growth rate of 13.5%. Its recently reported P/E and P/B ratios stand at 15.4x and 2.6x, respectively.
While the fund’s NAV has appreciated only 1.74% YTD, it has shown an impressive performance over the years. As of December 31, 2022, VTV has manifested cumulative total returns of 26.6% over a 3-year period, 50.6% over a 5-year period, and 208.1% over a 10-year period.
Boasting a diverse portfolio of 342 stocks, the ETF strategically allocates its weightage with the highest focus on Healthcare (20.5%) and Financial (19.1%) sectors, ensuring stability and steady growth for its investors. Other major VTV sectors include Industrials, Consumer Staples, and Energy.
The following companies hold the top five positions in the Vanguard Value ETF:
- Berkshire Hathaway Inc (Class C)
- UnitedHealth Group
- Johnson & Johnson
- Exxon Mobil corp
- JP Morgan Chase & Co.
3. Schwab US Dividend Equity ETF (SCHD)
Expense ratio: 0.06%
Listed in the large-value Morningstar category, Schwab US Dividend Equity is an exchange-traded fund that mimics the performance of the Dow Jones US Dividend 100 Index. This index is designed to track the performance of high dividend-yielding stocks issued by US companies known for their consistent dividend payments. These stocks are chosen based on their fundamental strength compared to their peers, as determined by financial ratios. To make sure it stays on track, the SCHD fund ensures that at least 90% of its net assets are invested in the benchmark index’s stocks.
Note that this ETF specifically allows investors to tap into the potential of dividends while generating notable overall returns over the long term.
Established in 2011, SCHD has now substantially grown to manage almost $46 billion in total net assets with 605 million shares outstanding. It is a prime example of a high-performing investment with its recent return on equity standing tall at 35.4%. Its P/E ratio of 13.40 is also a sign of its financial strength. As of December 31, 2022, SCHD’s distribution yield (TTM) sits at 3.39%.
According to Schwab Asset Management, the fund has delivered an average annualized return (NAV) of +11.69% and +13.73 over the past 5 and 10 years respectively.
This ETF incorporates 104 dividend-paying diverse holdings belonging to Financial Services, Industrials, Consumer Defensive, and Technology among others. Its top 5 companies with the highest weightage are:
- Broadcom Inc
- Verizon Communications Inc.
- Texas Instrument Inc.
- Merck & Co Inc.
- Cisco Systems Inc.