More Star Power for the Kiplinger ETF 20
To borrow a line from a song in Rodgers and Hammerstein's musical Carousel, exchange-traded funds are bustin' out all over. These low-cost funds are playing a bigger role in portfolios than ever before. ETFs make up one-third of investors' portfolios, according to a recent Charles Schwab study, up from 20% three years ago. Part of the draw is that ETFs are an attractive blend of mutual funds and stocks. Like mutual funds, they hold baskets of assets, but like stocks, they trade nimbly. More than two-thirds of investors say ETFs are their investment vehicle of choice. And nearly one-third say that they have replaced all individual securities in their portfolios with ETFs.
The first American ETF debuted 25 years ago, and it tracked Standard & Poor's 500-stock index. Now there are more than 2,000 ETFs, and many promise to do more than just match the returns of a broad market index. Some of these "smart beta" or "factor" funds try to beat a well-known index by putting more emphasis on companies with fast-growing earnings or revenues, for example. Others aim to lower risk by homing in on shares that have a history of a smoother ride or focusing on high-quality, established firms that pay dividends.
"ETFs provide very efficient ways to make specific market bets," says James J. Angel, associate professor of finance at Georgetown's McDonough School of Business. New ETFs are popping up all the time, occasionally with outlandish strategies. But all in all, says Angel, the proliferation of these funds is a good thing.
Our ETF picks. Three years ago, we launched . We've made a few shifts to the roster since then, and we're making some now (more on that in a bit). The list
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