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There might be more volatility ahead as the market faces potential regulatory reform and the growing sovereign debt crisis. ETFs are supported to make investors’ life easier. However, since the first ETF - SPDRs (NYSEARCA:SPY) - was created in 1993, there are more than 847 ETFs in the market today and they are still growing.

Number of New ETFs Created by Year

The following chart shows how the number of ETFs mushroomed in 2006 -2008 bull market.

ETF Fund Families’ Market Shares

The $743 billion ETF market is dominated by 3 major fund families: iShares, SPDR and The Vanguard Group. Their market shares (by net assets) are shown below:

Top 3 ETFs of 3 Major Fund Families

If you are index investors, the following top ETFs from major fund families should give you all the diversifications you need:

Fund Family
Fund Name (Ticker)
Net Assets
Expense Ratio
iShares Trust
iShares MSCI Emerging Markets (NYSEARCA:EEM)
36.02B
0.72%
iShares Trust
iShares MSCI EAFE Index (NYSEARCA:EFA)
33.64B
0.35%
iShares Trust
iShares S&P 500 Index (NYSEARCA:IVV)
20.86B
0.09%
SPDR
SPDRs (SPY)
66.71B
0.09%
SPDR
SPDR Gold Shares (NYSEARCA:GLD)
38.54B
0.40%
SPDR
SPDR S&P MidCap 400 ETF (NYSEARCA:MDY)
7.57B
0.25%
Vanguard
Vanguard Emerging Markets (NYSEARCA:VWO)
19.12B
0.27%
Vanguard
Vanguard Total Stock Market (NYSEARCA:VTI)
13.08B
0.07%
Vanguard
Vanguard Total Bond Market (NYSEARCA:BND)
6.76B
0.10%

Comparison Between iShares and Vanguard

Below are comparisons between Vanguard Emerging Markets (VWO) and iShares MSCI Emerging Markets (EEM). Even though their index methods might be slightly different…

Descr
VWO
EEM
Expense ratio
0.27%
0.72%
Beta
1.3
1.24
Number of stocks
816
430
Turnover rate
19.70%
5.00%
Top 10 as % of total net assets
14.30%
23.60%

…their performances over the last 5 years were almost the same.

High Dividend ETFs

Within short term, the idea of getting a 3.5%+ dividend yield from an ETF or a stock may not have much impact. But if you are a long term investor, the compounded numbers add up. Followings are 10 non-iShares ETFs with net assets over $1 billion yielding 3.5% or more.

Fund Name (Ticker)
Yield
Net Assets
Expense Ratio
SPDR Barclays Capital High Yield Bond (NYSEARCA:JNK)
12.2%
3.61B
0.40%
Pharmaceutical HOLDRs (NYSEARCA:PPH)
9.0%
1.63B
--
PowerShares Financial Preferred (NYSEARCA:PGF)
8.6%
1.51B
0.68%
Vanguard REIT Index ETF (NYSEARCA:VNQ)
4.6%
4.68B
0.11%
Vanguard Intermediate-Term Bond (NYSEARCA:BIV)
4.3%
1.32B
0.10%
Utilities Select Sector SPDR (NYSEARCA:XLU)
4.3%
3.33B
0.22%
SPDR Dow Jones REIT (NYSEARCA:RWR)
4.3%
1.00B
0.25%
Vanguard European ETF (NYSEARCA:VGK)
4.2%
2.46B
0.16%
Vanguard Total Bond Market ETF (BND)
4.0%
6.76B
0.10%
SPDR S&P Dividend (NYSEARCA:SDY)
3.8%
1.25B
0.35%

iShares’ high yield ETFs were discussed in my Feb 1 article.

When selecting ETFs, you can’t just rely on yield alone because it might mislead. For example, Pharmaceutical HOLDRs (PPH)’s yield is 8.9%. However, it is because it had a special dividend of $3.96 per share on Oct 21, 2009. The following chart from ETFReplay shows that over the last 5 years, PPH’s dividend hovered around 3.5% vs. SP 500's 2%.

Conclusion

Investors often need to fight the psychological battle between fear of loss and anxiety over the potential regret of missing out another rally. However, as John Bogle, founder of The Vanguard Group, said: “Time is your friend; impulse is your enemy”. Asset allocation-oriented investors can simply use the top index ETFs for your core holdings during times of economic turmoil. All you need to do is to set your target weights and rebalance your portfolios from time to time.

Data are from iShares, Vanguard, and Yahoo Finance as of February 12, 2010.

Disclosure: I have a long position on EEM, EFA, PPH and SPY.

Source: Using ETFs During Times of Turmoil