Advisors had to sift through thousands of ETFs last year, and of those thousands, ten funds stood out. Let’s take a look at what ETFs advisors sought more information about.
According to InvestmentNews, the list of the top ten funds researched by financial advisors last year is based on information given by Morningstar.
- iShares Barclays TIPS Bond (NYSEArca: TIP). With an expense ratio of 0.20%, advisors sought out this ETF for its cheap exposure to Treasury inflation-protected securities. If inflation rises, investors should consider switching regular bonds like Treasuries to Treasury Inflation-Protected Securities (TIPS). TIPS bonds' principal and interest payments grow with inflation.
- SPDR Gold Shares (NYSEArca: GLD). GLD has produced double digit returns in four of the five past years. Gold prices have been rising because currencies the world over are mostly in a weakening phase and governments are printing money fast and furiously. Experts are predicting that gold investment this year is going to soar, thanks to another year full of potential financial uncertainties.
- iShares MSCI EAFE Index ETF (NYSEArca: EFA). Another popular choice of advisors. The fund was up 27% last year and it has an expense ratio of 0.35%. The argument for investing globally is based on low correlations – if one area of the world tanks, another may be thriving. Investing overseas gives you diversification away from U.S. assets.
- iShares MSCI Emerging Markets (NYSEArca: EEM). Last year, international stock markets were all the rage, sparking billions of dollars of inflows into ETFs. The MSCI index provider managed to nab about 70% of that money.
- iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD). LQD has produced positive returns in each of the last seven years. Corporate bond spreads are the highest they’ve been since November, rising at the fastest pace in more than two months. The spike is on the heels of concerns that the state of government finances will hinder the recovery and make it more challenging for companies to make their debt payments.
- iShares Barclays Aggregate Bond Fund (NYSEArca: AGG). AGG provides exposure to government bonds, government-sponsored bonds (Fannie and Freddie, etc.), and corporate bonds. The bond and bond-related ETF markets have experienced quite a year, but the good times may soon come to an end. The specter of inflation and likely hikes in interest rates may cut away at hefty returns seen in recent months.
- PowerShares DB Commodity Index (NYSEArca: DBC). Commodities are still a good way to diversify an otherwise bland portfolio, but before you invest, assess your risk tolerance and act accordingly. If you want more safety, check out broad commodity funds that give you exposure to a diversified basket of commodities. The downside is that you won’t fully capitalize if any one commodity is performing particularly well.
- Vanguard Emerging Markets ETF (NYSEArca: VWO). Productivity in the emerging markets is improving. Emerging markets also enjoy a higher level of economic freedom. Economic freedom measures how free citizens of a particular country are to work, produce, consume and invest how they please. Emerging markets account for 50% of global gross domestic product, and counting. In fact, between 2008 and 2025, developing economies are projected to account for more and more of global GDP.
- iShares COMEX Gold Trust (NYSEArca: IAU). Gold prices more than doubled over the past few years. Gold may soar higher because of inflationary worries, higher investment demand in gold, Central Banks hoarding gold, potential for a currency crisis and any signs of major currency devaluations.
- SDPR S&P 500 (NYSEArca: SPY). SPY is one of the go-to ETFs for exposure to the broader market. The S&P 500 is made up of 500 of the largest companies that are publicly traded in the United States. This is the index that is most watched by professional traders. SPY is extremely liquid, currently averaging more than 166 million shares per day.
For full disclosure, some of Tom Lydon’s clients own shares of EEM.