In this article, we discuss 10 best ETFs to invest in for the long-term. If you want to take a look at more exchange traded funds in this list, click 5 Best ETFs to Invest In For Long Term.
Retail investors who like to dabble in the stock market without actively managing their portfolios often turn to exchange traded funds that are managed by professionals who know their way around trading even amid tumultuous economic conditions. SGX market strategist Geoff Howie said in an interview with The Business Times on May 31 that over the last two or three years, exchange traded funds have had higher assets under management and the number of retail investors who are active in the ETF market has almost tripled over a 3-year period.
Ben Slavin of BNY Mellon told CNBC’s ETF Edge on May 17 that although product development in ETFs slowed down from 50 ETFs a month in 2021 to 35 in 2022, there is still a strong market interest in the space. He noted that new ETFs are largely leaning towards an actively managed approach as market strategies need to be dynamic to tackle volatility.
While the stock market seems to be almost constantly on edge ever since the pandemic began in early 2020, most investors still want to take their chances and buy the dips on notable stocks that are heavily beaten down. However, a diversified and more affordable approach to get exposure to big players like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN) is via exchange traded funds.
Our Methodology
We assessed ETFs that offer exposure to multiple sectors in the economy, both value and growth plays, and large-, mid- and small-cap equities for a well-rounded overview of some of the popular 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 Invest In For Long Term
10. Vanguard Dividend Appreciation Index Fund (NYSE:VIG)
Vanguard Dividend Appreciation Index Fund (NYSE:VIG) aims to track the performance of the S&P U.S. Dividend Growers Index. The fund is passively managed and follows a full-replication approach, with an expense ratio of 0.06% as of May 27. It invests in equities that have a history of growing their dividends year over year. Vanguard Dividend Appreciation Index Fund (NYSE:VIG) holds 289 stocks and net assets of $75.7 billion, with a top ten holdings concentration of 29.50%.
The largest holding of the ETF is Microsoft Corporation (NASDAQ:MSFT), one of the Big Five US technology firms. Stifel analyst Brad Reback on June 2 reiterated a Buy rating on Microsoft Corporation (NASDAQ:MSFT) but lowered the price target on the shares to $320 from $350 based on the multiple contraction across the group and citing the company’s updated guidance to account for a more unfavorable foreign exchange environment through May. However, he cited secular tailwinds, strong execution, and a growing total addressable market for his optimistic outlook on the stock. Microsoft is also a notable dividend payer in the tech space, and its upcoming quarterly dividend per share of $0.62 is payable on June 9, to shareholders of record as of May 19.
According to Insider Monkey’s Q1 data, 259 hedge funds were bullish on Microsoft Corporation (NASDAQ:MSFT), compared to 262 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management held the biggest stake in the company, with 27.8 million shares worth about $8.6 billion.
Here is what Baron Opportunity Fund has to say about Microsoft Corporation (NASDAQ:MSFT) in its Q4 2021 investor letter:
“Shares of Microsoft Corporation, a cloud-software leader and provider of software productivity tools and infrastructure, rose during the quarter, following a strong earnings report highlighting solid demand for its broad product stack and continued momentum migrating its business to the cloud. Microsoft’s results continued to be strong across the board, with total revenue growing 20% in constant currency, beating Street estimates by 3%; an acceleration in Commercial Cloud revenue to 34% constant-currency growth; operating margins expanding to just under 45%; earnings growth of 23%; and free cash flow growth of 30%. We believe the company is positioned to deliver 13% to 15% organic growth over the next three years, underpinned by total addressable market expansion and continued market share gains across its disruptive cloud product portfolio.”
9. Vanguard Total Stock Market Index Fund (NYSE:VTI)
Vanguard Total Stock Market Index Fund (NYSE:VTI) seeks to track the performance of the CRSP US Total Market Index, exposing investors to large, mid, and small-cap equities across growth and value styles. The fund remains fully invested, with an expense ratio of 0.03%. Vanguard Total Stock Market Index Fund (NYSE:VTI) holds 4,112 stocks in its portfolio, with a top 10 holdings concentration of 24.20% and total net assets equaling $1.2 trillion. The primary sectors that the fund invests in are technology, industrials, healthcare, financials, and consumer discretionary.
Tesla, Inc. (NASDAQ:TSLA) is one of the biggest holdings in Vanguard Total Stock Market Index Fund (NYSE:VTI)’s portfolio. On April 20, Tesla, Inc. (NASDAQ:TSLA) reported earnings for the first quarter of 2022. The company posted earnings per share of $3.22, above consensus estimates by $0.95. The revenue of $18.76 billion rose 80.54% year-over-year, outperforming market forecasts by $917.76 million.
Among the hedge funds tracked by Insider Monkey, 80 funds were bullish on Tesla, Inc. (NASDAQ:TSLA), with Cathie Wood’s ARK Investment Management holding a prominent stake in the company, comprising 1.5 million shares worth $1.7 billion.
In addition to Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN), Tesla, Inc. (NASDAQ:TSLA) is a popular stock among elite investors.
Here is what Baron Fifth Avenue Growth Fund has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2022 investor letter:
“During the first quarter, we bought back shares in Tesla, Inc., which designs, manufactures, and sells electric vehicles, solar products, energy storage solutions, and batteries. We believe that despite the run in the stock over the last few years, Tesla presents a favorable risk/reward profile and remains a Big Idea with only about 1% market share of the automotive market. Since we bought the stock during the first quarter, shares increased 27.1%, despite a complex supply-chain environment, on continued revenue growth and record profitability. Robust demand and operational optimization allow the company to offset inflationary pressures while vertical integration provides flexibility around supply bottlenecks. Moreover, we expect new localized manufacturing capacity to drive additional efficiencies while software initiatives, including the autonomous driving program, are accelerating, offering valuable optionality to the stock.”
8. Schwab U.S. Small-Cap ETF (NYSE:SCHA)
Schwab U.S. Small-Cap ETF (NYSE:SCHA) aims to track the total return of the Dow Jones U.S. Small-Cap Total Stock Market Index. The fund may offer long-term growth for a portfolio, in addition to providing potential tax-efficiency. Schwab U.S. Small-Cap ETF (NYSE:SCHA) holds 1,807 stocks, with an expense ratio of 0.04% and total net assets of approximately $14.5 billion.
A prominent holding in Schwab U.S. Small-Cap ETF (NYSE:SCHA)’s portfolio is Ovintiv Inc. (NYSE:OVV), a Colorado-based distributor of natural gas, oil, and natural gas liquids. Mizuho analyst Vincent Lovaglio on May 31 reiterated a Buy recommendation on Ovintiv Inc. (NYSE:OVV) but lowered the price target on the stock to $77 from $78. As per the analyst, global energy undersupply has driven energy commodity prices higher, in addition to supply chain constraints and broader macro uncertainty. This theme has benefited the US exploration and production companies, said the analyst, who expects the growth to continue. He lifted price targets by 3% on average and leaned towards gas over oil-weighted E&Ps.
Among the hedge funds tracked by Insider Monkey, 44 funds were bullish on Ovintiv Inc. (NYSE:OVV) at the end of Q1 2022, with collective stakes worth over $2 billion. Paul Marshall and Ian Wace’s Marshall Wace LLP is the leading position holder in the company, with 4.8 million shares worth $263.3 million.
Here is what Miller Value Partners Opportunity Equity has to say about Ovintiv Inc. (NYSE:OVV) in its Q4 2021 investor letter:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
7. iShares Core S&P Mid-Cap ETF (NYSE:IJH)
iShares Core S&P Mid-Cap ETF (NYSE:IJH) exposes investors to U.S. mid-cap stocks in a low cost and tax efficient manner by tracking the investment returns of the S&P MidCap 400 Index. The fund offers long-term growth potential, with total net assets of $62.8 billion as of June 2. iShares Core S&P Mid-Cap ETF (NYSE:IJH) charges a management fee of 0.05%.
Builders FirstSource, Inc. (NYSE:BLDR) is one of the main holdings of iShares Core S&P Mid-Cap ETF (NYSE:IJH). It operates as a supplier of building materials, manufactured components, and construction services to professional homebuilders and consumers in the United States.
On May 17, BMO Capital analyst Ketan Mamtora reiterated an Outperform rating on Builders FirstSource, Inc. (NYSE:BLDR) but lowered the firm’s price target on the stock to $90 from $96. The company’s Q1 earnings beat reflected a strong quarter, and its robust balance sheet provides financial flexibility. The analyst also believes that the valuation is attractive at present levels.
According to Insider Monkey’s Q1 data, 57 hedge funds were bullish on Builders FirstSource, Inc. (NYSE:BLDR), with combined stakes worth $1.8 billion. Coliseum Capital is the biggest stakeholder of the company, with 5.5 million shares valued at $358.42 million.
Here is what Black Bear Value Fund has to say about FirstSource, Inc. (NASDAQ:BLDR) in its Q1 2022 investor letter:
“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.
The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.
The management team has been using their prodigious free cash flow to both acquire new businesses and buy in their stock. While I historically always liked their business, their historic high-debt levels gave me pause. They have right sized their balance sheet and are taking a very thoughtful view on capital allocation on behalf of shareholders.
BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 11-15% free-cash flow yield so little growth is needed for us to compound value at high rates.”
6. Vanguard Real Estate Index Fund (NYSE:VNQ)
Vanguard Real Estate Index Fund (NYSE:VNQ) closely tracks the return of the MSCI US Investable Market Real Estate 25/50 Index. The ETF invests in real estate investment trusts that deal in office buildings, hotels, and other properties. The fund offers solid potential for dividend income and growth, helping diversify the risks in a portfolio. At the end of April, Vanguard Real Estate Index Fund (NYSE:VNQ) held 163 stocks, with a top 10 holdings concentration of 45.3%. The fund primarily invests in specialized, residential, industrial, and healthcare REITs.
Prologis, Inc. (NYSE:PLD), a top holding of the ETF, is a real estate firm that invests in business-to-business and retail/online fulfillment sectors. The company seeks out properties, development projects, and modern logistics facilities. Truist analyst Ki Bin Kim on May 16 maintained a Buy rating on Prologis, Inc. (NYSE:PLD) but lowered the price target on the stock to $162 from $166 as part of a broader research note on REITs, updating his model given its Q1 earnings, revenue growth, and expense assumptions.
According to Insider Monkey’s data, 37 hedge funds were bullish on Prologis, Inc. (NYSE:PLD) at the end March 2022, with collective stakes worth $546.5 million. Jeffrey Furber’s AEW Capital Management is the leading shareholder of the company, with more than 2 million shares worth $326.8 million.
Like Microsoft Corporation (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN), Prologis, Inc. (NYSE:PLD) is on the radar of institutional investors.
Third Avenue Management mentioned Prologis, Inc. (NYSE:PLD) in one of its letters. Here is what they said about PLD in their Q1 2021 investor letter:
“Prologis, Inc. (a U.S.-based real estate investment trust that is the largest owner of modern logistic facilities with a platform that expands more than 950 million square feet of space in 19 countries globally) completing $2.0 billion USD of debt placements at a weighted average interest rate of 0.9% with an average term of more than 13 years. In the process, the company has further solidified one of the most compelling capital structures in the real estate industry with a prudent loan-to-value ratio of approximately 25% that is primarily fixed-rate debt at an average cost of 1.8% for a term that exceeds 10 years. As a result, the long-tenured management at Prologis (including one of the true leaders in the real estate space CEO Hamid Moghadam) have set up the company for what could be a very rewarding period ahead as incremental rental income and asset management fees seem likely to accrue disproportionately to shareholders on the “bottom-line” with its interest costs locked-in.”
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Disclosure: None. 10 Best ETFs to Invest In For Long Term is originally published on Insider Monkey.
