The Top 10 Exchange-Traded Funds

July 23, 2008

After reading my introduction to exchange-traded funds, I know you are dying with anticipation to find out the best exchange traded funds on the market. There are many quality exchange-traded funds, but first you must know the different types of funds. An ETF wears many different hats just like mutual funds. Here are the four major categories of exchange traded funds.

Index ETF

The index ETF is similar to a traditional index mutual fund. It buys company stocks or bonds that mirror a particular stock index such as the S&P 500 or the Russell 2000. According to Wikipedia, as of February of 2008, there were 415 domestic equity index ETF’s, 160 global/international equity ETF’s, and 53 bond ETF’s. This is one of the biggest categories for an ETF, and they typically carry the lowest expenses, just like index mutual funds.

Commodities ETF

This ETF invests in commodities such as precious metals, and natural resources such as oil, coal, and food. One of the first of these funds was the gold exchange-traded fund. Commodity exchange-traded funds are typically index funds that track a commodities index. Make sure you do your research on these funds, because they are not regulated by the SEC like traditional investment companies.

Actively-Managed ETF

These are the newest type of exchange-traded funds. They became available to the public in March of 2008. They have higher expenses, because there are broker fees that you will pay. The response has been minimal so far, because many investors are looking to see which funds will post the best returns. I am interested to see which of these funds emerge as the front-runner. They have the chance of boasting higher short-term returns than the index ETFs.

Now that you are familiar with the different types of exchange-traded funds, let’s take a look at the best funds on the market. There are hundreds of great ETFs on the market, but here are ten funds that shine above the rest.

Top 10 Exchange-Traded Funds ( no particular order )

  1. iShares MSCI Japan Index fund: Japan’s economy is growing exponentially. This is a no-brainer.
  2. Powershares FTSE RAFI Fund: The fund tracks the 1000 largest domestic companies based on the size of the firm, book value, sales and dividends, and cash flow. It’s emphasis on cash flow will help it pick winners.
  3. Vanguard Total Market ETF: An anchor for your portfolio.
  4. iShares Lehman Aggregate ETF: A broad fund with potential for strong, steady returns.
  5. Vanguard European Stock ETF: Diversify your portfolio and take advantage of Britain’s strong currency.
  6. Vanguard Growth ETF: extremely low fees and Vanguard’s stellar reputation for growth funds make this a winner for the long-term.
  7. iShares Dow Jones U.S. : It tracks the Dow Jones, and the Dow has boasted 10% returns over the past 80 years.
  8. Powershares Dynamic Mid-Cap Growth: This stock will give you great long-term returns once the market picks back up.
  9. iShares MSCI Brazil Index: Brazil’s economy continues to grow, has a strong currency, and record-low inflation. Not to mention they have an abundance of natural resources.
  10. Powershares WilderHill Clean Energy: I threw this one in as a wild card. Alternative energy is the most important issue of our time, so this fund could make you a millionaire if the proper technological advances are made over the next 10 years.

I picked these ETF’s based on their potential for long-term growth. Don’t take this list as gospel. it is merely my opinion, so don’t come track me down if they end up tanking. There are a ton of trendy exchange-traded funds. Energy ETFs are hot right now, but I don’t think it will last. Make sure you don’t get caught up in trendy investing, unless you have a great deal of time to invest. Now is your chance to rip me apart based on my picks. Comment below with your thoughts and questions.

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Erik Folgate is a husband and father living in Orlando who's been writing about money online for 6 years. Digging himself out of $20k of debt after college and his former experience in the insurance industry give him some useful insights into personal finance issues.

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5 Responses to The Top 10 Exchange-Traded Funds

  • Frank

    What I believe are the tickers for your list:
    1. EWJ
    2. PRF
    3. VTI
    4. AGG
    5. VGK
    6. VUG
    7. IYY
    8. PWJ
    9. EWZ
    10. PBW


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