Kip ETF 20: The Best Cheap ETFs You Can Buy

iShares Core S&P 500 ETF

• Kip ETF classification: Core stock fund
• Dividend yield: 1.3%
• Expense ratio: 0.03% 0.03%

The iShares Core S&P 500 ETF (IVV) is as basic an investment as you can get. It tracks the ubiquitous S&P 500 index, which covers about 85% of the total stock market, for a low expense ratio of 0.03%. 

Stocks in the fund – all of the S&P 500 constituents – are weighted by market value, or stock price times shares outstanding, so it should come as no surprise that the fund's top holdings are the mega-cap firms Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Amazon.com (AMZN), Meta Platforms (META) and Alphabet (GOOGL). 

iShares Core S&P Mid-Cap ETF

• Kip ETF classification: Core stock fund
• Dividend yield: 1.4%
• Expense ratio: 0.05%

We like the combination of the iShares Core S&P Mid-Cap ETF (IJH) with its large-company counterpart, the iShares Core S&P 500, because there's no overlap in holdings. 

The fund tracks the S&P MidCap 400 index. Index constituents are firms with market values that currently fall between $6.7 billion and $18 billion, covering about 8% of the total U.S. stock market. Examples include Carlisle Companies (CSL), which makes construction products; data storage firm Pure Storage (PSTG); and home goods retailer Williams-Sonoma (WSM). 

Mid-cap stocks rallied in the early part of the 12-month period ending in June, but they have lagged in more-recent months. 

iShares Core S&P Small-Cap ETF

• Kip ETF classification: Core stock fund
• Dividend yield: 1.4%
• Expense ratio: 0.06%

The iShares Core S&P Small-Cap ETF (IJR) tracks the S&P SmallCap 600 index, which includes the smallest 6% of the total U.S. stock market – currently companies with market values between $1 billion and $6.7 billion. Top holdings include clothing retailer Abercrombie & Fitch (ANF); Fabrinet (FN), which makes optical communication components, lasers and sensors; and ATI (ATI) – formerly Allegheny Technologies – which supplies specialty materials for use in the aerospace and defense industries. 

This fund complements the iShares Core S&P suite of ETFs; there's no overlap in fund holdings. But we also favor its approach over other small-company indexes because it includes only profitable firms – earnings for the most recent quarter as well as the sum of earnings for the most recent four quarters must be positive – giving it a high-quality tilt. 

That has helped performance in recent years. Over the past three, five- and 10-year periods, iShares Core S&P Small-Cap has outpaced the Russell 2000 benchmark of small-company stocks. 

iShares MSCI USA ESG Select ETF

• Kip ETF classification: Core stock fund
• Dividend yield: 1.2%
• Expense ratio: 0.25%

A backlash against investing with environmental, social and corporate governance qualities in mind, or ESG investing, has escalated in recent years. But we are unmoved. The iShares MSCI USA ESG Select ETF (SUSA), which we consider ESG-lite, stays in the Kip ETF 20, our favorite cheap ETFs. The 174-stock index it tracks avoids certain businesses, including those involved in firearms, nuclear weapons and tobacco. Top holdings include the usual large-cap fund names, such as Nvidia, Microsoft and Apple. 

But the fund also holds some energy stocks, including ONEOK (OKE) and SLB (SLB). It even holds a few low-rated ESG firms, such as 3M (MMM), an industrial conglomerate that ESG data firm Sustainalytics rates as a "severe risk" when it comes to potential ESG trouble. (The ratings are designed to help investors identify ESG risks that could impact a firm's financial value.) 

The ESG fund has lagged the broad market in recent years, but its five- and 10-year returns are in spitting distance of the S&P 500.

Vanguard Total International Stock

• Kip ETF classification: Core stock fund
• Dividend yield: 3.1%
• Expense ratio: 0.08%

The Vanguard Total International Stock ETF (VXUS), which holds about 8,500 foreign stocks, is an easy way to add international exposure to a portfolio. As its name implies, the fund is all-encompassing and holds shares in companies from developed markets, such as the U.K. and Japan, as well as emerging ones, such as China and India. 

Emerging market stocks make up nearly 20% of the fund's assets. U.S. investors have largely ignored international stocks for most of the past decade because they've lagged U.S. stocks. We're still waiting for a turnaround, but in recent months, some markets have shown signs of life. Over the past 12 months, Vanguard Total International Stock gained 11.0%. 

Schwab U.S. Dividend Equity ETF

• Kip ETF classification: Dividend stock fund
• Dividend yield: 3.6%
• Expense ratio: 0.06%

Stocks that boast an above-average dividend yield are the objective in the Schwab U.S. Dividend Equity ETF (SCHD). But the algorithm that drives the stock picking at Schwab U.S. Dividend Equity favors consistent payers – those with at least 10 years of dividends – and firms with strong financials, such as a healthy return on equity (a profitability measure) and abundant free cash flow relative to total debt. (Free cash flow is the money left over after operating expenses and spending on assets.) 

The fund's value tilt dampened returns over the past year, as seen in SCHD's single-digit return. But it currently yields 3.6%, double the yield of the S&P 500. And over the long haul, the fund has delivered solid results – 0.8% annualized over the past 10 years. Texas Instruments (TXN), Amgen (AMGN) and Lockheed Martin (LMT) are top holdings. 

Vanguard Dividend Appreciation ETF

• Kip ETF classification: Dividend stock fund
• Dividend yield: 1.8%
• Expense ratio: 0.06%

Don't confuse the Vanguard Dividend Appreciation ETF (VIG) with the Vanguard Dividend Growth Fund (VDIGX), the storied actively managed mutual fund. Although both funds target the best dividend stocks for dependable dividend growth, this cheap ETF is passively managed. It tracks an index that includes companies that have consistently boosted their payouts for at least 10 years in a row. 

Top holdings in the fund are a blend of growth and value-oriented names, including Apple, Microsoft, JPMorgan Chase (JPM), Broadcom (AVGO) and Exxon Mobil (XOM). The fund's growth tilt has helped returns recently. Over the past 12 months, the Vanguard Dividend Appreciation is up 14.6%. The fund yields 1.8%.

WisdomTree Global ex-US Quality Dividend Growth Fund

• Kip ETF classification: Dividend stock fund
• Dividend yield: 1.7%
• Expense ratio: 0.42%

Some dividend strategies focus heavily on yield; others sacrifice a bit of yield in favor of firms with growing dividends. The WisdomTree Global ex-U.S. Quality Dividend Growth Fund (DNL) falls in the latter group. Companies that consistently raise their payouts tend to be disciplined about running their businesses and boast steady profitability, the thinking goes. The approach gives the dividend ETF a growth-and-quality tilt that has helped returns in recent years, as stocks with those attributes have performed well. 

Over the past 12 months, the Global Ex-U.S. Quality Dividend Growth's 11.1% gain just misses beating the MSCI ACWI ex USA index of stocks in foreign developed and developing countries. We use that index because the ETF is similarly exposed: 87% of its assets are in shares in developed foreign countries, and 13% are in emerging-markets stocks. Its top holdings are Taiwan Semiconductor Manufacturing (TSM), Novo Nordisk (NVO) and Samsung Electronics. The fund yields 1.9%.

Health Care Select Sector SPDR ETF

• Kip ETF classification: Strategic stock funds
• Dividend yield: 1.5%
• Expense ratio: 0.09%

Healthcare stocks have struggled lately, especially those of smaller companies, and we're growing weary of waiting for a sustained small-cap rally to begin. So we're shifting our focus from an equal-weighted healthcare fund, the Invesco S&P 500 Equal Weight Health Care (RSPH), to this market-value-weighted large-cap sector fund. 

The Health Care Select Sector SPDR ETF (XLV) is one of the lowest-cost healthcare sector ETFs around, with a 0.09% annual expense ratio (far below the 0.40% of Invesco S&P 500 Equal Weight Health Care). And it holds 63 stocks. Heavyweights such as Eli Lilly (LLY), UnitedHealth Group (UNH), Johnson & Johnson (JNJ) and Merck (MRK) dominate its top holdings. 

The fund's one-year return through June is 11.6%, which ranks among the top 24% of all healthcare-focused funds. Its 11.4% five-year annualized return is among the top 6% of its peers. 

iShares Core MSCI Emerging Markets ETF

• Kip ETF classification: Strategic stock funds
• Dividend yield: 2.8%
• Expense ratio: 0.09%

Investing in emerging market stocks has been a gloomy affair, but the sun is beginning to peek through the clouds, say many Wall Street analysts. China has been a drag on results, but Susan Gim, a portfolio manager at the investment firm Martin Currie, sees signs of recovery there, and growth in India promises a "great economic opportunity." 

Meanwhile, after emerging-markets earnings growth contracted in 2023, it is expected to accelerate to 18% in the year ahead, driven by South Korea and Taiwan, say Franklin Templeton analysts. 

The iShares Core MSCI Emerging Markets (IEMG), which charges a low 0.09% expense ratio, holds stock in companies in those two countries and 24 others, including Brazil, China, India and Turkey. There's some momentum already: Over the past six months, the ETF has gained 6.9% – more than the 5.7% return in developed foreign countries.  

JPMorgan U.S. Quality Factor ETF

• Kip ETF classification: Strategic stock fund
• Dividend yield: 1.2%
• Expense ratio: 0.12%

A focus on high-quality stocks has been spot-on over the past year. The JPMorgan U.S. Quality Factor ETF (JQUA) gained 21.1% over the past 12 months, among the best performers of the Kip ETF 20 for the period. That doesn't beat the broad market, up 24.6%, but U.S. Quality Factor was less volatile. 

The fund sifts for companies that meet 10 quality criteria, including measures of profitability, financial risk and earnings quality. It holds 256 stocks, including Nvidia, Meta Platforms and Alphabet. 

SPDR S&P Kensho New Economies Composite ETF

• Kip ETF classification: Strategic stock fund
• Dividend yield: 1.2%
• Expense ratio: 0.2%

Thematic funds zero in on an emerging trend or a new invention so that investors can cash in with less risk. Instead of buying shares in one or two stocks that capture the trend, investors can spread their money among several companies. But while some funds zoom in on one theme – robotics, say – the S&P Kensho New Economies Composite ETF (KOMP) folds in multiple trends, from automation and artificial intelligence to cryptocurrency and energy-efficient technologies. 

The diverse mishmash means that some trends the fund targets may soar while others take a breather. That helps explain the skimpy, 4.7% gain in Kensho New Economies Composite over the past 12 months. Its top holdings include Coinbase Global (COIN), a cryptocurrency exchange platform; defense company Leidos Holdings (LDOS) – think cybersecurity – and bitcoin mining firm Cleanspark (CLSK). 

Technology Select Sector SPDR Fund

• Kip ETF classification: Strategic stock fund
• Dividend yield: 0.09%
• Expense ratio: 0.7%

The Technology Select Sector SPDR ETF (XLK) climbed 31.1% over the past year. No other fund did better, but that's hardly surprising. This is the second straight annual review of the Kip ETF 20 in which the fund has outpaced the S&P 500 by a wide margin over the preceding 12-month period. 

The cheap ETF tracks a subset of the S&P 500 – the roughly 65 stocks considered information technology companies. Shares are weighted by market cap, from the biggest, Microsoft, at more than $3 trillion, to the smallest, cloud-networking company F5 (FFIV), at just under $10 billion. 

Vanguard FTSE Europe ETF

• Kip ETF classification: Strategic stock fund
• Dividend yield: 3.2%
• Expense ratio: 0.09%

Our bet on Europe continues to pay off, despite a stumble in early June, after the French president called a snap election. The prospects for European stocks look good because the region's economic rebound has helped lift earnings estimates for the second half of 2024, says Jeff Kleintop, chief global investment strategist at Charles Schwab. 

The Vanguard FTSE Europe ETF (VGK) climbed 11.8% over the past 12 months, a tad ahead of the MSCI EAFE index of stocks in foreign developed markets. The U.K., France, Switzerland and Germany are the fund's biggest country exposures; Novo Nordisk, ASML Holding (ASML), Nestlé (NSRGY) and Shell (SHEL) are top holdings.

Fidelity Total Bond ETF

• Kip ETF 20 classification: Core bond fund
• SEC yield: 5.2%*
• Expense ratio: 0.36%

The Fidelity Total Bond ETF (FBND) is a steady Eddie fund that has outpaced its peers in seven of the past nine calendar years (its first full year was 2015). It had below-average volatility, too. 

It's an actively managed investment-grade bond fund, and it holds mostly medium-maturity U.S. government debt, corporate debt and government-backed mortgage bonds. But it has the leeway to boost returns by investing up to 20% of assets in lower-quality debt securities, including high-yield corporate IOUs, emerging-markets bonds and leveraged loans. These so-called "plus" sectors performed well in 2023, lifting the fund's returns. 

Over the past 12 months, Fidelity Total Bond gained 3.6%, ahead of the 2.6% climb in the Bloomberg U.S. Aggregate Bond index, a benchmark of high-quality U.S. debt. In recent months, the fund's managers have been cutting the fund's risk by reducing its exposure to corporate credit and shoring up its stake in Treasuries. The fund yields 5.2%. 

* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.

Invesco BulletShares 2026 Corporate Bond ETF

• Kip ETF 20 classification: Core bond fund
• SEC yield: 5.3%
• Expense ratio: 0.10%

Target-maturity bond funds do what their name implies – that is, they hold a bunch of bonds with a similar maturity date. In the case of the Invesco BulletShares 2026 Corporate Bond ETF (BSCQ), that means 458 investment-grade (debt rated triple-A to triple-B) corporate securities, each maturing in 2026. 

These types of funds are designed to help investors build a bond ladder, an investing strategy that involves assembling a portfolio of bonds with different maturity dates spaced out at regular intervals. As bonds mature, you re-invest the proceeds into new bonds with a longer maturity date – the furthest "rung" (or date) up the ladder. 

Target-maturity bond funds are designed to be held to maturity. During the maturing year, the fund doesn't add to holdings. As bonds mature in the portfolio, the fund's portfolio transitions to cash and cash equivalents. Like a bond that matures, the fund will close and disburse the proceeds to shareholders at or near the end of its target year. We use it here in place of a short-term corporate bond fund. The fund yields 5.3%. 

SPDR DoubleLine Total Return Tactical ETF

• Kip ETF 20 classification: Core bond fund
• SEC yield: 5.7%
• Expense ratio: 0.55%

One of the reasons that actively managed intermediate-term bond funds tend to outperform the Agg, the broad bond benchmark, is that they can boost returns by investing in sectors that aren't in the index. 

The gurus at the SPDR DoubleLine Total Return Tactical ETF (TOTL) have favored non-traditional sectors, such as bank loans, emerging-markets debt and structured credit (such as collateralized loan or debt obligations). 

The DoubleLine Total Return Tactical ETF has returned 0.8% since the start of 2024, ahead of 81% of its peers (intermediate-term core-plus bond funds). Over three years, the fund has notched above-average returns with below-average risk. It yields 5.7%.

BlackRock Short Duration Bond ETF

• Kip ETF 20 classification: Strategic bond fund
• SEC yield: 5.1%
• Expense ratio: 0.25%

We jettisoned the BlackRock Ultra Short-Term Bond ETF (ICSH) for the actively managed BlackRock Short Duration Bond ETF (NEAR) with a higher duration, or sensitivity to interest rates. 

We think the fund allows investors to cash in, still, on high short-term interest rates, but it better sets up investors for a boost in returns if rates move down (bond prices and interest rates move in opposite directions). 

The fund holds 65% of its assets in bonds with maturities from one to seven years. It yields 5.1%, a tad less than the ETF it replaces, but the new fund's duration of 1.9 years implies that if interest rates fall by one percentage point, the fund's net asset value will rise 1.9%. Over the past year, the fund gained 6.5%, which is more than 75% of its peer group (short-term bond funds). Over the past three years, it has won solid marks for high returns and low risk relative to peers. 

Invesco Senior Loan ETF

• Kip ETF 20 classification: Strategic bond fund
• SEC yield: 8.0%
• Expense ratio: 0.65%

Last year, we wavered on whether to keep the Invesco Senior Loan ETF (BKLN) on this list of our favorite cheap ETFs. Senior loans (also known as bank loans) perform best when interest rates are rising – the coupon rate on these securities adjusts every few months in step with a short-term-bond benchmark – and analysts predicted cuts in 2024. 

We kept the fund, thinking interest rates might stay higher for longer, and we were right. The Invesco Senior Loan has been the best ETF among bond funds in the Kip ETF 20 over the past 12 months, returning 9.1%. It wins on yield too, at 8.0%. 

Even if rates fall – most expect a quarter-point cut later this year – senior loans tend to be lower in volatility and offer better risk-adjusted returns over the long haul relative to other bond sectors. 

Vanguard Tax-Exempt Bond ETF

• Kip ETF 20 classification: Strategic bond fund
• Dividend yield: 3.6%
• Expense ratio: 0.05%

The municipal bond market has been volatile this year, thanks to uncertainty about inflation and interest rates. The Vanguard Tax-Exempt Bond ETF (VTEB)  has struggled to keep pace with its peers. 

It's an index fund, which means it should be about average for its peer group (funds that invest in medium-maturity municipal debt). But its 2.8% total return over the past 12 months ranks below average. We're watching this fund closely. It still beats on cost with a low, 0.05% annual expense ratio. And it has a super-low tracking error, which measures how closely the fund behaves relative to the index it mimics. 

We have another fund in mind. It's actively managed, by a respected team. But it has a short track record, so it's too soon to recommend it. Stay tuned. 

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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