The ETF boom means there's now roughly 4,000 funds to choose from. How do you know if you own the best ones?
You don't, unless you take the time to see if there might be better options now than when you first bought your ETFs.
"A little homework using third-party ETF provider sites or screens on your brokerage accounts can reveal other alternatives," said Todd Rosenbluth, head of research at TMX VettaFi.
What are some signs it might be time to swap ETFs? Smaller funds can be worth looking at.
Look For Lower Costs
Choice is continually expanding with ETFs. Just this year, roughly 550 new ETFs started trading, says ETF.com.
And that means an ETF that was the best for you years ago, may no longer be.
The SPDR S&P 500 ETF Trust is the most popular ETF in the world. If you're like most investors, you likely own it. Even Warren Buffett owns SPY in his Berkshire Hathaway portfolio.
On Oct. 17, the giant ETF that tracks the stocks in the S&P 500 topped $600 billion in assets. It's the first ETF to hit that milestone. Just this one ETF accounts for 20% of all U.S.-listed ETF trading volume.
But is it the best ETF for you? Probably not. The ETF charges 0.09% as an annual expense ratio. Yes, that's cheap compared with what most actively managed mutual funds charge. But if you shop around, you can get the same market exposure for less.
Take the SPDR Portfolio S&P 500 ETF. It owns the same 500 stocks as SPY. But it only charges 0.02% annually. For a $100,000 position, that's an annual savings of $70 — or roughly 14 free lattes.
Watch Out For Laggards
If you still own Cathie Wood's ARK Innovation ETF, it's starting to get costly.
The popular ETF, that aims to invest in breakthrough companies, is the second worst performing actively traded U.S. diversified ETF this year, says Morningstar Direct. It's posted a net loss of 10% so far this year. The ETF is closely tied to Tesla stock, its top holding at roughly 10% of the portfolio. Tesla shares are lagging the S&P 500 this year.
There are other options, though, for investors looking for similar market exposure to innovation. The $439 million-in-assets AB Disruptors ETF is up 28% this year. Its top holding is Nvidia at 5.5%.
AB Disruptors charges 0.65% annually, versus 0.75% by ARK Innovation.
Another example where there's a viable alternative is for the $9 billion in assets Pacer US Small Cap Cash Cows 100 ETF. The ETF returned a negative 4% this year. It's been hurt by some laggard energy firms in the portfolio like Peabody Energy.
But there are other options for investors looking to hold a basket of companies with strong cash flow, Rosenbluth says. For instance, VictoryShares Small Cap Free Cash Flow ETF is up more than 6% this year "due to its growth tilt and focus on more liquid stocks," he said.
The $145 million-in-assets VictoryShares Small Cap Free Cash Flow has positions in 200 stocks including one-year winners like Dillard's and Scorpio Tankers.
Better Bonds, Too?
There are alternatives in fixed income, too. The Janus Henderson AAA CLO ETF has caught on with investors looking for income. It has $15 billion in assets, making it the giant in the space.
But this year, the smaller $609 million-in-assets Van Eck CLO ETF has outperformed. It returned 6.8% this year vs. 6% for Janus Henderson's ETF.
It's up to investors, though, to make sure ETF alternatives are truly equivalent, Rosenbluth says. "These alternatives are not necessarily better in all environments," he said.
Largest ETFs By Assets
Bigger isn't always better
| Name | Ticker | YTD return % | Assets ($ billions) |
|---|---|---|---|
| SPDR S&P 500 ETF Trust | SPY | 23.8% | $600.2 |
| iShares Core S&P 500 | IVV | 23.9 | 547.9 |
| Vanguard S&P 500 | VOO | 23.9 | 547.8 |
| Vanguard Total Stock Market | VTI | 22.5 | 446.8 |
| Invesco QQQ Trust | QQQ | 21.6 | 300.3 |
| Vanguard Growth | VUG | 27.1 | 144.0 |
| Vanguard FTSE Developed Markets | VEA | 8.3 | 140.4 |
| Vanguard Value | VTV | 19.7 | 129.7 |
| iShares Core MSCI EAFE | IEFA | 8.5 | 122.7 |
| Vanguard Total Bond Market | BND | 2.4 | 117.6 |
