In this article, we discuss 10 best ETFs to diversify your portfolio and avoid risks.
The importance of ETFs has redoubled in 2022 as the stock market takes a beating amid volatility, inflation and rate hikes. ETFs are managed by professionals who closely monitor changes at the stock market, and adjust the underlying portfolios and asset weights accordingly. Most ETFs also offer attractive distribution yields, as well as exposure to the biggest names in the market like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Johnson & Johnson (NASDAQ:JNJ), at relatively affordable prices.
A Bloomberg report dated September 9 reveals that Neuberger Berman, a private investment management firm, is planning to convert its only US commodity mutual fund into an exchange traded fund. Neuberger is the latest asset manager to jump on this ETF trend, and will likely pour around $1 trillion into the ETF universe with this move. The Neuberger Berman Commodity Strategy Fund, with $233 million in net assets, will be converted to an actively managed ETF in the fourth quarter of 2022. One of the primary reasons for the conversion is the lower-cost and more tax-efficient nature of ETFs.
Money managers have been exiting emerging market ETFs rapidly, fearing a strong US dollar. Investors withdrew $1.21 billion from US-listed ETFs that invest in developing economies and emerging countries in the week ended September 2, and this was the highest pull back since May 2020, according to data presented by Bloomberg. This is why it is important to assess new market dynamics frequently and invest accordingly when one wants to diversify portfolios and avoid risks.
Photo by Adam Nowakowski on Unsplash
Our Methodology
We explored ETFs that offer exposure to multiple sectors of the economy, both value and growth plays, large and small-cap equities, and dividend stocks for a well-rounded outlook of some of the top funds listed on US exchanges. We have also discussed the top holdings of the ETFs to offer better insight to potential investors.
Best ETFs to Diversify Your Portfolio and Avoid Risks
10. Vanguard Real Estate Index Fund (NYSE:VNQ)
Vanguard Real Estate Index Fund (NYSE:VNQ) invests primarily in real estate investment trusts (REITs) that own and operate office buildings, hotels, residential properties, and other real estate. The ETF tracks the total returns of the MSCI US Investable Market Real Estate 25/50 Index. As of May 27, Vanguard Real Estate Index Fund (NYSE:VNQ) offers an expense ratio of 0.12%, while the average expense ratio of similar funds is 1.05%. The ETF holds 167 stocks in its portfolio, and as of August 31, the median market cap stands at $26.6 billion. Vanguard Real Estate Index Fund (NYSE:VNQ)’s total net assets were $72 billion as of late August.
A top holding of Vanguard Real Estate Index Fund (NYSE:VNQ) is American Tower Corporation (NYSE:AMT), one of the largest global REITs that operates multi-tenant communications real estate. JPMorgan analyst Philip Cusick on September 8 reiterated an Overweight rating on American Tower Corporation (NYSE:AMT) with a $305 price target after meeting with CFO Rod Smith. The analyst had “incrementally positive views” on the U.S., Europe, and Asia-Pacific businesses of American Tower Corporation (NYSE:AMT), and he was “encouraged” by trends in Latin America and Africa as well. The U.S. services business appears “poised to remain strong” in the next year with the carriers benefiting from American Tower Corporation (NYSE:AMT)’s “value-added offerings,” the analyst tells investors in a bullish thesis.
According to Insider Monkey’s data, 52 hedge funds were long American Tower Corporation (NYSE:AMT) at the end of Q2 2022, compared to 50 funds in the last quarter. Charles Akre’s Akre Capital Management is the biggest stakeholder of the company, with approximately 7 million shares worth $1.78 billion.
Like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Johnson & Johnson (NASDAQ:JNJ), elite hedge funds are bullish on American Tower Corporation (NYSE:AMT).
Here is what Baron Real Estate Fund has to say about American Tower Corporation (NYSE:AMT) in its Q2 2022 investor letter:
“American Tower is a leading global tower company with 220,000 communication sites globally and over 40,000 in the U.S. We added to our position during the market dislocation and as it became increasingly clear that the company would put permanent equity financing in place at better-than-expected terms for its previously announced acquisition of CoreSite (thereby removing the “equity overhang”).
In addition, the company stepped back from a large potential deal in Europe, which would have required significant incremental funding, due to unfavorable contract terms and price. This decision further reinforced our confidence in management’s capital allocation discipline knowing that these were highly sought-after assets.”
9. Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD)
Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD) tracks the performance of the S&P 500 Low Volatility High Dividend Index. The fund invests at least 90% of its total assets in the 50 securities in the benchmark index that have historically offered high dividend yields and low volatility. As of September 21, the SEC 30 day yield of Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD) is 4.58%, and the fund offers a total expense ratio of 0.30%. The ETF has an average market cap of $75.5 billion. The portfolio comprises stocks from the utilities, real estate, consumer staples, financials, materials, energy, and communications services sectors, among others. It is one of the best ETFs to diversify a portfolio, as investors are seeking refuge in low volatility yet high income stocks.
Altria Group, Inc. (NYSE:MO) is the biggest holding of the Invesco S&P 500 High Dividend Low Volatility ETF (NYSE:SPHD), representing 3.14% of the total portfolio. Altria Group, Inc. (NYSE:MO) is an American company that manufactures and sells smokable and oral tobacco products in the United States. On August 25, Altria Group, Inc. (NYSE:MO) declared a $0.94 per share quarterly dividend, a 4.4% increase from its prior dividend of $0.90. The dividend is distributable on October 11, to shareholders of record on September 15. The company delivered a dividend yield of 8.69% on September 22.
According to the second quarter database of Insider Monkey, 48 hedge funds held stakes worth $1.8 billion in Altria Group, Inc. (NYSE:MO), up from 47 funds the prior quarter worth $1.95 billion. Arrowstreet Capital is the leading position holder in the company, with 8.86 million shares valued at $370.3 million.
Here is what Broyhill Asset Management has to say about Altria Group, Inc. (NYSE:MO) in its Q2 2021 investor letter:
“Altria (MO) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 20%. We shared our thoughts on these regulations during the quarter, which are available here.
MO Valuation. MO is up ~ 18% YTD (even accounting for the recent sell-off). We expect MO to generate close to $5 in annual FCF per share over the next few years, putting the stock at ~ 10x, which is less than half the market’s multiple today. Over the last decade, shares have traded at an average multiple of 15x and within a range of ~ 10x – 20x (+/-1 standard deviation). The stock yields 7.2% at the current price, close to a 6% premium to treasuries. Historically, shares have traded closer to a 3% premium to the 10Y, which would imply a ~ $75 share price.”
8. Vanguard 500 Index Fund (NYSE:VOO)
Vanguard 500 Index Fund (NYSE:VOO) is one of the best ETFs to diversify a portfolio and avoid risks. The fund invests in stocks in the S&P 500 Index, which represents 500 of the largest American companies. Vanguard 500 Index Fund (NYSE:VOO) offers an expense ratio of 0.03% as of the end of April. The ETF is a feasible investment for long-term investors who want to grow their money. On August 31, the median market cap stood at $168.5 billion.
Apple Inc. (NASDAQ:AAPL) is the biggest holding of Vanguard 500 Index Fund (NYSE:VOO), with the stock representing 7.16% of the total portfolio. On September 20, Evercore ISI analyst Amit Daryanani raised the price target on Apple Inc. (NASDAQ:AAPL) to $190 from $185 and reiterated an Outperform rating on the shares, noting that demand for high-end iPhone models is “notably higher” compared to prior years.
According to Insider Monkey’s Q2 data, Apple Inc. (NASDAQ:AAPL) was part of 128 hedge fund portfolios, compared to 131 in the prior quarter. Warren Buffett’s Berkshire Hathaway is the leading stakeholder of the company, with a position worth more than $122 billion.
In its Q2 2022 investor letter, Alger Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple Inc. (NASDAQ:AAPL) is a leading technology provider in telecommunications. computing and services. Apple’s iOS operating system is the company’s unique intellectual property and competitive strength. This software drives extremely tight engagement with consumers and enterprises. The engagement is fostering the growing purchase of high-margin services like music, apps, and apple pay. Apple’s shares detracted from performance as management lowered its guidance for the second quarter due to headwinds from the war in Ukraine, adverse foreign currency shifts, and dampened consumer demand associated with the coronavirus in China. Additionally, many investors were concerned that lockdowns implemented to curtail the spread of COVID-19 would impact production of apple products, however the manufacturing facilities have resumed activity.”
7. Invesco S&P 500 GARP ETF (NYSE:SPGP)
Invesco S&P 500 GARP ETF (NYSE:SPGP) seeks to track the investment results of the S&P 500 Growth at a Reasonable Price Index. The underlying index comprises roughly 75 stocks from the S&P 500 that have been categorized as having the largest “growth scores” and “quality and value composite scores”. Invesco S&P 500 GARP ETF (NYSE:SPGP) has an average market cap of roughly $138 billion as of the end of June 2022, and the total expense ratio on September 21 came in at 0.33%. It is one of the best ETFs to diversify a portfolio and avoid risks in this market environment.
Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN), a New York-based manufacturer of medicines for multiple diseases, holds the leading position in Invesco S&P 500 GARP ETF (NYSE:SPGP)’s portfolio. On September 16, Canaccord analyst John Newman raised the price target on Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) to $750 from $700 and maintained a Buy rating on the shares, citing successful preliminary trial results from its collaboration with Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY).
Among the hedge funds tracked by Insider Monkey, Jim Simons’ Renaissance Technologies is the biggest stakeholder of the company, with 583,062 shares worth $344.6 million. Overall, 44 hedge funds were bullish on Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) at the end of June 2022, with collective stakes worth $1.60 billion.
In addition to Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Johnson & Johnson (NASDAQ:JNJ), Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is one of the stocks on the radar of smart investors.
Oakmark Funds shared its stance on Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) in its Q2 2021 investor letter. Here is what the investment management firm said:
“We restored Regeneron Pharmaceuticals from a rather trivial to a more normal position size. You may recall Regeneron performed well for the Fund during the Covid-19 crisis, so we significantly reduced our position as its price-value gap narrowed. During the past several quarters, however, the market has experienced the now infamous “reopening trade,” in which companies that performed well during the pandemic trailed as the economy reopened. Regeneron suffered a similar fate and its shares have lagged the S&P 500 by roughly 4000 basis points, despite the company’s strong fundamentals and robust pipeline of new products. The underperformance widened Regeneron’s price-value gap, so we restored it to a more normal position size.”
6. Invesco QQQ Trust (NASDAQ:QQQ)
Invesco QQQ Trust (NASDAQ:QQQ) tracks the NASDAQ-100 Index and ranks in the top 1% of large-cap growth ETFs. Invesco QQQ Trust (NASDAQ:QQQ)’s performance has historically outperformed the S&P 500 Index. The fund exposes investors to long-term investment themes like augmented reality, cloud computing, big data, online streaming, electric vehicles, and more. As of September 21, Invesco QQQ Trust (NASDAQ:QQQ) reported $157.21 billion in assets under management.
Microsoft Corporation (NASDAQ:MSFT) is one of the premier holdings of Invesco QQQ Trust (NASDAQ:QQQ). On September 20, Microsoft Corporation (NASDAQ:MSFT) declared a quarterly dividend of $0.68 per share, a 10% increase from its prior dividend of $0.62. The dividend is payable on December 8, to shareholders of record on November 17. In a recent interview with Bloomberg, Microsoft Corporation (NASDAQ:MSFT) CEO Satya Nadella reiterated his confidence that the $69 billion deal to acquire Activision Blizzard will get approved by regulators in the United Kingdom. It is Microsoft’s largest acquisition ever.
Among the hedge funds tracked by Insider Monkey, Microsoft Corporation (NASDAQ:MSFT) was part of 258 public stock portfolios, with collective stakes worth $56 billion. Ken Fisher’s Fisher Asset Management is the leading position holder in the company, with a stake valued at $7.36 billion.
In its Q2 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“Shares of Microsoft Corporation (NASDAQ:MSFT), a leading global provider of software solutions, declined 16.6% in the quarter along with the broader software group as well as due to growing concerns of a potential macro-driven slowdown. This is despite the company posting strong quarterly financial results and successfully absorbing headwinds from the war in Ukraine. The company had 21% revenue growth, 23% operating income growth, and 35% growth in Microsoft Cloud (all year-over-year in constant currency), which now represents 47% of total revenues. (read more…)
5. Schwab U.S. Dividend Equity ETF (NYSE:SCHD)
Schwab U.S. Dividend Equity ETF (NYSE:SCHD) aims to track the total return of the Dow Jones U.S. Dividend 100 Index. The fund offers potential tax efficiency and an expense ratio of just 0.06%. As of September 21, Schwab U.S. Dividend Equity ETF (NYSE:SCHD) has net assets amounting to over $36 billion, and the SEC 30 day yield is 3.51%. It is one of the best ETFs to diversify a portfolio, given its solid distribution yield and the robust portfolio.
Texas Instruments Incorporated (NASDAQ:TXN) occupies the biggest position in Schwab U.S. Dividend Equity ETF (NYSE:SCHD)’s portfolio, representing 4.12% of the total securities. It is a legacy American semiconductor firm that sells its products to electronics designers and manufacturers worldwide. On September 15, Texas Instruments Incorporated (NASDAQ:TXN) declared a $1.24 per share quarterly dividend, a 7.8% increase from its prior dividend of $1.15. The dividend is payable on November 15, to shareholders of record as of October 31. The board of directors also authorized repurchasing another $15 billion in common stock over time. This is in addition to the $8.2 billion of priorly authorized repurchases that remained at the end of the second quarter of 2022.
Among the hedge funds tracked by Insider Monkey, Jean-Marie Eveillard’s First Eagle Investment Management is the leading stakeholder of Texas Instruments Incorporated (NASDAQ:TXN), with 3.5 million shares worth over $542 million. Overall, 55 hedge funds were bullish on the stock at the end of June, up from 46 funds in the earlier quarter.
Here is what Davis Opportunity Fund has to say about Texas Instruments Incorporated (NASDAQ:TXN) in its Q4 2021 investor letter:
“Within technology and communication services, we own a number of online businesses and semiconductor related companies, including Alphabet, Amazon, Intel, Applied Materials and Texas Instruments. Within the realm of high technology, we believe that leadership positions reflect enduring and widening competitive advantages over smaller competitors, with few exceptions. This is because online businesses, as well as semiconductor companies, benefit from economies of scale. An online search and advertising engine will, in general, be more profitable per unit of cost as it grows larger in terms of users and advertising dollars. It is a hub-and-spoke model, in other words, where it is generally not necessary to grow expenses at the same rate that revenues grow beyond a certain threshold. Therefore, returns on capital tend to be higher, the larger and more dominant the online search company is.”
4. iShares Core Dividend Growth ETF (NYSE:DGRO)
iShares Core Dividend Growth ETF (NYSE:DGRO) invests in companies that have a history of sustained dividend growth and belong to diversified industries. The fund seeks to track the performance of the Morningstar US Dividend Growth Index. iShares Core Dividend Growth ETF (NYSE:DGRO) has 413 stocks in its portfolio, and offers a 30 day SEC yield of 2.30% as of August 31. The ETF is relatively affordable, with an expense ratio of 0.08%.
Johnson & Johnson (NYSE:JNJ) is one of the top holdings of iShares Core Dividend Growth ETF (NYSE:DGRO). Johnson & Johnson (NYSE:JNJ), the American multinational healthcare giant, announced on September 14 that its board has authorized repurchasing up to $5 billion worth of common stock, citing robust cash flow and lowest level of net debt in five years.
According to Insider Monkey’s Q2 data, Johnson & Johnson (NYSE:JNJ) was part of 83 hedge fund portfolios, with collective stakes worth $6.7 billion. Rajiv Jain’s GQG Partners is the biggest stakeholder of the company, with 6.5 million shares worth $1.16 billion.
Here is what Mayar Capital has to say about Johnson & Johnson (NYSE:JNJ) in its Q2 2022 investor letter:
“J&J is currently our largest position and a long-standing holding. The majority of the group’s sales comes from its collection of pharmaceutical franchises, but a large majority (~45%) comes from its collection of medical device businesses and its consumer brands.
Here’s how JNJ makes and spends a dollar of revenues: As of 2021, about 55 cents of that dollar comes from its pharmaceutical sales – sales of drugs to pharmacies and distributors – while 30 cents come from the sale of medical devices, such as surgery equipment and orthopedics. The rest of that dollar in sales comes from sales of JNJ’s consumer brands such as Listerine mouthwash, Nicorette nicotine tablets and Neutrogena cosmetics.
To make that dollar, however, JNJ typically spends about 25 cents to make the products themselves and another 27 cents on marketing and general administrative functions. This leaves JNJ with about 48 cents on the dollar in profit…” (Click here to see the full text)
3. Vanguard High Dividend Yield Index Fund (NYSE:VYM)
Vanguard High Dividend Yield Index Fund (NYSE:VYM) aims to track the performance of the FTSE High Dividend Yield Index, which consists of common stocks of companies with high dividend yields. The ETF follows a passively managed, full-replication approach. Vanguard High Dividend Yield Index Fund (NYSE:VYM) has an expense ratio of 0.06% and offers a 30 day SEC yield of 3.02% as of August 31. The ETF has a median market cap of $128.5 billion and 443 stocks in its portfolio. It is one of the best ETFs to diversify a portfolio, especially for income investors who are on the hunt for high dividend yields.
Exxon Mobil Corporation (NYSE:XOM) is one of the premier holdings of Vanguard High Dividend Yield Index Fund (NYSE:VYM), occupying 2.94% of the total portfolio. On September 12, Piper Sandler analyst Ryan Todd maintained an Overweight rating on Exxon Mobil Corporation (NYSE:XOM) but lowered the price target on the stock to $108 from $109. The analyst remains constructive on the integrated oils group, citing near-record distillate margins that will drive upside in refining estimates through the winter and into an “equally tight” 2023.
Exxon Mobil Corporation (NYSE:XOM) was part of 72 hedge fund portfolios at the end of Q2 2022, compared to 83 in the last quarter. Rajiv Jain’s GQG Partners is the largest stakeholder of the company, with 47.5 million shares worth over $4 billion.
2. Vanguard Dividend Appreciation Index Fund (NYSE:VIG)
Vanguard Dividend Appreciation Index Fund (NYSE:VIG) seeks to replicate the performance of the S&P U.S. Dividend Growers Index. It is a passively managed fund that remains fully invested. As of May end, the expense ratio for Vanguard Dividend Appreciation Index Fund (NYSE:VIG) is 0.06%. The median market cap stood at $143.9 billion on August 31, and the fund has 289 stocks in its portfolio. The 30 day SEC yield came in at 1.89%. It is one of the best ETFs to diversify a portfolio as investors are protected by safe and growing dividends in the currently volatile market. Dividends are a solid hedge against inflation.
Vanguard Dividend Appreciation Index Fund (NYSE:VIG)’s largest holding is UnitedHealth Group Incorporated (NYSE:UNH), which operates as a diversified healthcare company in the United States. On September 22, investment advisory Raymond James raised the price target on UnitedHealth Group Incorporated (NYSE:UNH) to $635 from $620 and maintained a Strong Buy rating on the shares. Analyst John Ransom issued the ratings update.
According to Insider Monkey’s Q2 data, 91 hedge funds were bullish on UnitedHealth Group Incorporated (NYSE:UNH), compared to 103 funds in the prior quarter. Boykin Curry’s Eagle Capital Management is one of the leading stakeholders of the company, with 2.8 million shares worth $1.5 billion.
Here is what Baron Durable Advantage Fund has to say about UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2022 investor letter:
“UnitedHealth Group Incorporated is a leading diversified health and wellbeing company whose divisions include insurance arm, United Healthcare and health care services arm, Optum, which offers care delivery and other services. Shares increased 1.1% on strong first quarter results (revenues were up 14% year-over-year), and the company increased its annual guidance.
The performance was driven by Optum as a result of a growing adoption of value-based solutions. We believe UnitedHealth leads the health care industry in innovation and execution as evidenced by its strong value proposition leading to Medicare Advantage share gains, strong cost controls, and its leadership position in the shift to value-based care.”
1. VanEck Oil Services ETF (NYSE:OIH)
VanEck Oil Services ETF (NYSE:OIH) aims to replicate the price and yield performance of the MVIS US Listed Oil Services 25 Index, which tracks the overall performance of American companies specializing in the upstream oil sector. As of September 22, the ETF has $2.1 billion in total net assets and a net expense ratio of 0.35%. VanEck Oil Services ETF (NYSE:OIH) has registered YTD gains of 13.24% as of September 22. It is one of the best ETFs to diversify a portfolio and avoid risks, as crude oil will climb yet again in the winter.
Schlumberger Limited (NYSE:SLB) is the largest holding of VanEck Oil Services ETF (NYSE:OIH), representing 20.02% of the total net assets. Schlumberger Limited (NYSE:SLB) is a Texas-based company providing technology for the energy industry worldwide. In late July, Benchmark analyst Douglas Becker upgraded Schlumberger Limited (NYSE:SLB) to Buy from Hold with a $55 price target, supported by a positive inflection point in international spending and activity. The analyst expects the company to reach its 25% EBITDA margin target in Q3 2023, a quarter earlier than initial forecasts. He sees the reward-risk being “skewed nearly 3:1 to the upside”.
According to Insider Monkey’s data, 64 hedge funds were bullish on Schlumberger Limited (NYSE:SLB) at the end of June 2022, up from 58 funds in the last quarter. William B. Gray’s Orbis Investment Management is a prominent stakeholder of the company, with 12.8 million shares worth $457.65 million.
Here is what ClearBridge Investments specifically said about Schlumberger Limited (NYSE:SLB) in its Q2 2022 letter.
“We further added to our positioning for the accelerating energy transition with the purchase of Schlumberger Limited (NYSE:SLB), a global provider of oilfield services. As a technology leader, Schlumberger should generate strong free cash flow over the next few years as the industry recovers, using its excess cash to gain market share from smaller players and to expand into new areas of growth. Through its scale, presence, partnerships and technology, Schlumberger is targeting expansion into new large addressable markets such as carbon capture, hydrogen, geothermal and lithium extraction.”
You can also take a look at 10 Best Quality Stocks To Buy and 10 Best Consumer Discretionary Stocks To Buy.
Follow Insider Monkey on Twitter
Suggested articles:
Disclosure: None. 10 Best ETFs to Diversify Your Portfolio and Avoid Risks is originally published on Insider Monkey.
