I’m a big fan of Exchange Traded Funds (ETFs). They’re liquid, easy to understand, and cost a fraction of traditional mutual funds.
Even better, they’re diversified. In one shot, investors can spread their risk across hundreds or even thousands of different stocks. That can make it a lot easier to sleep at night.
Of course, while the number of ETFs has grown significantly over the last few years, the quality has not. Not every ETF is posed to deliver an acceptable return to its holders; some are. So to help get you started, I’ve identified the three top ETFs for 2015. This represents my best ETF picks for the second half of the year.
Vanguard World Fund – Vanguard Health Care ETF (NYSEArca:VHT)
Vanguard Health Care ETF’S (NYSEArca:VHT) inception date was January 26, 2004. Net assets are $6.9 billion with an expense ratio of 0.12%. This ETF seeks to track the performance of the healthcare industry. (Source: Vanguard, last accessed August 11, 2015.)
To put these facts into perspective, the healthcare industry performed well this year despite volatility in overall markets. Technically, stocks in this category are considered as value stocks which are often perceived as defensive regardless of fluctuations in equity markets.
Meanwhile, the global economy has suffered from a series of economic crises from the eurozone. Moreover, a slowdown in the second-largest economy, China, could indicate that defensive stocks would perform reasonably better compared to other equities.
With that said, VHT is expected to be a safe ETF against upcoming market volatilities and possible turmoil in the global economy.
The Select Sector SPDR Trust – The Financial Select Sector SPDR Fund (NYSEArca:XLF)
The Financial Select Sector SPDR Fund (NYSEArca:XLF) seeks to track the S&P financial select sector index. Assets under management are $20.38 billion and average daily trading volume is 5.8 million shares. (Source: SPDR, last accessed August 11, 2015.)
I have been watching bank stocks for a long time. There are a few factors that could contribute to a bank’s performance. Return on equity and legal fees are the ones to watch closely when you want to invest in bank stocks. With that in mind, banks in XLF are among those banks that have both an acceptable return on equity and declining legal fees.
On the other hand, the interest rate is set to rise after being kept near zero for nine years. For banks, it means that they will have more money by lending money to individuals and businesses and consequently higher revenue and earnings. I expect that to translate into tidy returns for investors.
iShares Trust – iShares North American Tech-Software ETF (NYSEArca:IGV)
The iShares North American Tech-Software ETF (NYSEArca:IGV) tracks the result of an index composed of North American equities in the software sector. The ETF’s shares have gone up by more than 11% this year to $103.16. (Source: iShares.com, last accessed August 11, 2015.)
Technology stocks are exposed to more volatility compared to other sectors, as they have a higher risk/reward profile. Simply said, the industry is so sensitive to overall economic conditions, even a minor economic downturn could impact this stock significantly.
However, within the technology industry, companies operate in a different spectrum; from hardware production to software and data integration. With this in mind, this ETF’s holdings very well represent a different aspect of the technology industry which could lead to lower risk. I expect this ETF with its minimum exposed risk to perform well for the coming months.