Best Index Funds/ETFs for 2021

[valueventures]

Hi All,

 

I know most of this forum is dedicated to individual investment ideas, but wanted to gauge your thoughts on index funds/ETFs. I passively manage my IRA and want to diversify away from SPYs/total market index funds into more targeted index funds/ETFs that are better suited to the current market. For example, I'm considering rotating capital towards value (i.e., COVID losers) since I think the tide will continue to turn like it did in November. I'm also interested in passively playing various sectors and themes that should see continued growth (cybersecurity, clean energy, gig economy, etc.).

 

I'm wondering if anyone has any thoughts here.

 

Thanks!

[Jurgis]

Very timely thread. I was thinking where to post this and voila.  8)

 

Dimensional issued active ETFs:

 

https://us.dimensional.com/etfs

 

Dimensional are highly regarded mutual fund shop. Their funds are accessible only through an advisor. Now their ETFs are accessible to everyone. Maybe that's a sign that they sold out and don't expect to outperform. ;)

 

I bought token amounts to keep them on my mind.

[valueventures]

This is interesting, thanks for sharing. Do you see any advantage to Dimensional over Vanguard, iShares, etc.? Looks like the exposure and expense ratio would be comparable.

 

Beyond indices, the types of ETFs I'd consider would be things like Robotics & Artificial Intelligence (BOTZ), VanEck Vectors Video Gaming and eSports (ESPO), etc. I'd like to be able to hone in on high conviction sectors without having to do due diligence on individual companies.

[clutch]

IMO sector ETFs defeat the purpose of investing in index funds. The goal of index funds investing is to get the guranteed guaranteed market average return. By trying to concentrate on certain sectors you are essentially stock picking (or more accurately, sector picking). If you are picking anything, you should probably do due diligence.

 

If you really like a particular sector, you should study the best companies in that sector and try to invest in few of them IMO.

[Jurgis]

OK, let's be controversial: ARK ETFs FTW: https://ark-funds.com/  8)

[thowed]

How about the S&P600.  I think this is quite an underrated small-cap index, though it's struggled relative to the S&P500 in the FAANG-times.

 

It's been hugely overshadowed by the Russell 2000, but has generally delivered superior performance, partly because of the construction methodology, which provides for certain requirements from the companies. 

 

I can't remember them in detail, but I think being profitable might be one of them.  This might not be for those who favour early-stage SaaS flywheels, but overall doesn't seem an unreasonable thing.

 

p.s. Jurgis - thanks - someone had to mention ARK!

[Spekulatius]

OK, let's be controversial: ARK ETFs FTW: https://ark-funds.com/  8)

 

Ark - I wonder about cause and effect :

[maplevalue]

VVL Vanguard Global Value Factor ETF https://www.vanguardcanada.ca/advisors/products/en/detail/etf/9795/equity

 

Although I am not a big fan in general of smart beta style ETFs, this seems like a decent alternative to a top heavy index like the SP500 (TSLA's inclusion was the last straw for me in owning the SP500). I believe the weighted average on PB is 1x vs. a FTSE Developed All Cap of 2.6x.

 

TSX listed (although I think there is a US equivalent somewhere).

[compoundinglife]

Have you considered going with an equal weighted version of a stock index? I wonder if that might be a better option than going with a value tilt. If things continue as they are you still capture some of the momentum upside but also stand to capture some of the value upside if value and cyclicals do well.

[winjitsu]

Have you considered going with an equal weighted version of a stock index? I wonder if that might be a better option than going with a value tilt. If things continue as they are you still capture some of the momentum upside but also stand to capture some of the value upside if value and cyclicals do well.

 

+1 VTI or similar total market index funds. Research on value outperformance vs growth is based on holding the value stock even as it exits the value criteria. Value focused funds, as a result, almost always sell winners too early. You don't have this issue with a total market fund.

[LearningMachine]

In case the broader S&P 500 crash materializes this time, to plan ahead, has anyone looked into growth focused ETFs?

I don't like VOOG because it also uses "12-month-momentum" as a criteria.

I don't like sector focused ETFs like VGT because even though you can predict AI is going to have a huge impact in the next 3 decades, it is hard to predict which company is going to capture the value.  For example, Amazon might be capturing the value from it but it is not even part of VGT.  It might be another company we haven't even heard of yet that captures the value from AI that is not even part of VGT. How do we make sure such a company gets into the ETF you select?

Biotech is another growth-potential industry I like but I don't like XBI and IBB ETF providers because of securities lending practices last time I checked - I might be misremembering here.  Also, any new laws to limit pricing power of biotech companies, e.g. allowing medicare to negotiate drug prices, could be an issue.

If the crash materializes this time, wonder if some of us will be to be ready to go into growth stocks focused ETF that you can sit on for a long time and not have to pay increased capital gains taxes by having to get in and out.  Companies come and go similar to how food-stalls come and go in a food-court - if you can't buy the food-court, how do you select the food stalls that are growing earnings.  Similarly, wondering if there is a way select companies that are growing earnings automatically using a low-expense ETF.  Maybe it is not easy, and give up, and own the cross-section of all the food-stalls, i.e. VOO?

I don't like PKW because of the turnover, where it might end up picking up stocks after buyback and selling after buyback stops. 

I don't like VUG because annual return history is not as high as I would have liked, but maybe acceptable.  Wonder if their methodology will miss some high-potential stocks as they come.

 

Edited May 12, 2021 by LearningMachine