Best US Exchange Traded Funds (ETFs) in 2020

Best US Exchange Traded Funds (ETFs) in 2020
PHOTO: Pixabay

ETFs hold a special place in my heart.

The first thing I invested in as a poor graduate with not much capital was the Straits Times Index (STI) exchange-traded fund (ETF).

What drew me to ETFs was it allowed me to create a diversified portfolio with a small amount of investment capital.

I also liked the daily liquidity of ETFs as like the name suggests, you can trade ETFs on the stock exchange like ordinary stock

The low fees of ETFs appealed to me as well as they generally have lower fees compared to mutual funds.

ETFs are also very versatile as you can invest in market indices like the S&P500 and into sectors like technology, health, consumer staples and investment trends.

As much as the STI ETF has its merits, I was looking to diversify globally and the US ETFs caught my eye.

If you would like to add some exposure to American companies and add a relatively safer investment to your portfolio — we got you!

Here are seven of the best US ETFs for your consideration.

TL;DR: Seven of the best US Exchange Traded Funds (ETF) in 2020 

Exchange Traded Fund Companies/Sector Annualised Returns
(5 Years)
Expense Ratio (net)
Vanguard S&P 500 (VOO) Top 500 companies in U.S. 9.08per cent 0.07per cent
SPDR Dow Jones Industrial Average (DIA) Top 30 companies in the U.S. 8.92per cent 0.16per cent
iShares Russell 2000 ETF (IWM) Top 2000 small-cap U.S. companies 2.89per cent 0.19per cent
Technology Select Sector SPDR Fund (XLK) Technology 18.40per cent 0.13per cent
SPDR S&P Health Care Equipment ETF (XHE) Healthcare 14.75per cent 0.13per cent
Consumer Staples Select Sector SPDR Fund (XLP) Consumer Staples 6.62per cent 0.13per cent
SPDR Gold Trust (GLD) Gold 6.95per cent 0.40per cent

What are Exchange-Traded Funds?

Before you start buying up US ETFs, here are some important things to consider.

When you are investing in ETFs you are not actually buying a company’s stock or bonds directly. Rather you are investing money into a fund that buys a basket of stocks and bonds for you.

Naturally, holding multiple stocks or assets in one fund reduces volatility in comparison to just buying a few individual stocks.

Do note that when investing in ETFs, be sure that you would buy the underlying assets that the fund invests in.

As diversified as ETFs are, they are still an investment. And as with all investments, ETFs come with risk.

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Risks of buying ETFs

Even though you are buying an ETF with several underlying positions, the risk still applies. Some investments might give higher returns but are a lot riskier and ETFs are no exception.

ETFs that track market indices like the Dow Jones Industrial Average are generally less risky. Whereas ETFs that track commodities, options and small narrower sectors are more risky and volatile.

In other words, less risk ≠ no risk.

US Exchange Traded Fund fees

Expense ratio

Expense ratio (or management expense ratio) is the expense incurred to pay the managers for managing the fund.

Choosing an actively managed fund will naturally cost more per year and eat into your returns. So as an investor, you want to find an ETF with a low expense ratio .

According to Morningstar Investment Investment Research, investors pay an average of 0.52per cent expenses for US ETFs.

In other words, the fund will cost you $5.20 in annual fees for every $1,000 you invest.

Foreign currency risk

Since these ETFs are denominated in a currency outside Singapore dollars (SGD), investors need to be aware of the risk of currency fluctuations, during transactions and translations.

On top of this, brokerages also charge conversion fees. When you too up SGD to your brokerage account and buy U.S. stocks denominated in USD, your broker will charge a currency conversion fee which will eat into your returns.

When You have any currency conversion always consider multi-currency accounts like YouTrip, Revolut, InstaReM or TransferWise as they generally charge lower fees.

ALSO READ: How to choose an ETF that suits you

Withholding tax for dividends

Singaporeans investing in the American market are taxed 30per cent on our dividends as the U.S does not have a tax treaty with Singapore.

For example, if the company declares a dividend that amounts to $100 to you, you will essentially only receive $70. However, we are exempt from capital gains (when the share price of our shares increase).

One way to go around this is to invest in Ireland-Domiciled ETFs . These Irish-Domiciled ETFs benefit from the U.S./Ireland tax treaty rate of 15per cent on dividends.

And while this is not perfect, it certainly is more pocket-friendly than 30per cent.

However, not all U.S. ETFs are domiciled in Ireland.

1) The All-Rounder — Vanguard S&P 500 ( VOO)

We will start things off with a classic.

Investing in the Vanguard S&P 500 ETF (VOO) gives you exposure to 500 of the biggest companies in the U.S. by market capitalisation.

FYI: Market capitalisation (or market cap for short) simply refers to a company’s share price multiplied by its total number of outstanding shares.

The top 10 companies ( 26.01per cent of total assets) represented in this fund include:

Name Symbol Percentage of Assets
Microsoft Corp MSFT 5.67per cent
Apple Inc AAPL 5.09per cent
Amazon.com Inc AMZN 4.27per cent
Facebook Inc A FB 2.04per cent
Alphabet Inc A GOOGL 1.67per cent
Alphabet Inc Class C GOOG 1.67per cent
Johnson & Johnson JNJ 1.64per cent
Berkshire Hathaway Inc Class B BRK.B 1.48per cent
Visa Inc Class A V 1.26per cent
Procter & Gamble Co PG 1.22per cent

This grants you instant diversification into all these U.S. companies.

In a way investing in the S&P 500 is like a proxy for investing in the U.S. economy.

If you are investing for the long term, this index fund is would be a good fit.

Over the last 5 years, the VOO ETF has produced annualised total returns of 9.08per cent (as of 21 May 2020).

This fund (Ireland Domiciled) also charges an expense ratio (net) of just 0.07per cent .

2) Top 30 over 30 — The SPDR Dow Jones Industrial Average ETF (DIA)

Next up we have the SPDR Dow Jones Industrial Average ETF (DIA).

The fund tracks the Dow Jones Industrial Average , a stock market index tracking 30 large companies listed on the US’ New York Stock Exchange (NYSE) and the Nasdaq.

Compared to the S&P500 which is broader and more heavily weighted to banks and technology companies, the DIA is narrower and more heavily weighted to industrial companies.

In the DIA, components with higher share prices are given greater weight. Therefore, a higher percentage move in a higher-priced stock will have a larger impact on the index.

That means the DIA is price-weighted, as opposed to the S&P 500, which is market capitalisation-weighted.

The top 10 companies ( 55.67per cent of total assets) represented in this fund include:

Name Symbol Percentage of Assets
Apple Inc AAPL 8.27per cent
UnitedHealth Group Inc UNH 8.23per cent
The Home Depot Inc HD 6.19per cent
McDonald's Corp MCD 5.28per cent
Goldman Sachs Group Inc GS 5.16per cent
Microsoft Corp MSFT 5.04per cent
Visa Inc Class A V 5.03per cent
3M Co MMM 4.28per cent
Johnson & Johnson JNJ 4.22per cent
Boeing Co BA 3.97per cent

Some of the stocks that belong to the DIA are brand name companies such as 3M, American Express, Apple, Coca-Cola, Disney, Johnson & Johnson, Nike, and Visa.

Over the last 5 years, the DIA ETF has produced annualised returns of 8.92per cent (as of 21 May 2020).

This fund also charges an expense ratio (net) of just 0.16per cent.

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3) Small-Cap Companies — iShares Russell 2000 ETF (IWM)

If the big companies aren’t your thing, you can check out the iShares Russell 2000 ETF (IWM) which tracks the 2000 smallest companies in the Russell 3000 index. This is calculated based on market capitalisation.

FYI: Small-cap companies have a market capitalisation between $300 million to $2 billion.

This is a great way to invest gain exposure to the smaller companies in the U.S. stock market as a whole.

These smaller companies have lots of room for growth but are generally riskier and more volatile.

The top 10 companies ( 3.9per cent of total assets) represented in this fund include:

Name Symbol Percentage of Assets
Teladoc Health Inc TDOC 0.72per cent
Lumentum Holdings Inc LITE 0.37per cent
Repligen Corp RGEN 0.37per cent
Generac Holdings Inc GNRC 0.36per cent
Amedisys Inc AMED 0.35per cent
Haemonetics Corp HAE 0.35per cent
Immunomedics Inc IMMU 0.35per cent
NovoCure Ltd NVCR 0.35per cent
Five9 Inc FIVN 0.34per cent
Trex Co Inc TREX 0.34per cent

Over the last 5 years, the IWM ETF has produced annualised returns of 2.89per cent (as of 21 May 2020).

This fund also charges an expense ratio (net) of just 0.19per cent.

4) Tech Focused — the Technology Select Sector SPDR Fund (XLK)

Now to sector ETFs.

If you are interested in the technology sector and U.S. technology companies; the Technology Select Sector SPDR Fund (XLK) ETF will be a good fit.

The XLK ETF tracks the price and would provide exposure to the technology and telecom sector in the U.S.

This includes technology companies that deal in hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment, instruments and components.

The top 10 companies ( 67.95per cent of total assets) represented in this fund include:

Name Symbol Percentage of Assets
Microsoft Corp MSFT 22.00per cent
Apple Inc AAPL 19.75per cent
Visa Inc Class A V 4.92per cent
Intel Corp INTC 4.20per cent
Mastercard Inc A MA 3.93per cent
Cisco Systems Inc CSCO 2.89per cent
NVIDIA Corp NVDA 2.88per cent
Adobe Inc ADBE 2.75per cent
PayPal Holdings Inc PYPL 2.32per cent
Salesforce.com Inc CRM 2.31per cent

Do note that this ETF is more narrow, but it allows investors to take a more targeted position.

Over the last 5 years, the XLK ETF has produced annualised returns of 18.40per cent (as of 21 May 2020).

This fund also charges an expense ratio (net) of just 0.13per cent.

5) A ‘healthy’ investment — SPDR S&P Health Care Equipment ETF (XHE)

The SPDR S&P Health Care Equipment ETF (XHE) tracks the healthcare equipment and supplies sector in the U.S.

The majority of the companies here are in the healthcare sector, with a small minority of companies in the Industrials and Technology sector.

The top 10 companies ( 24.04per cent of total assets) represented in this fund include:

Name Symbol Percentage of Assets
Quidel Corp QDEL 3.34per cent
iRhythm Technologies Inc IRTC 2.81per cent
DexCom Inc DXCM 2.80per cent
Masimo Corp MASI 2.33per cent
Merit Medical Systems Inc MMSI 2.33per cent
Tandem Diabetes Care Inc TNDM 2.24per cent
West Pharmaceutical Services Inc WST 2.20per cent
ICU Medical Inc ICUI 2.10per cent
CryoPort Inc CYRX 1.95per cent
Insulet Corp PODD 1.94per cent

Although this ETF is more narrow, it let investors take a more strategic position on the healthcare sector in the U.S.

Over the last 5 years, the XHE ETF has produced annualised returns of 14.75per cent (as of 21 May 2020).

This fund also charges an expenses ratio of just 0.13per cent.

6) Stuff you cannot do without — The Consumer Staples Select Sector SPDR Fund (XLP)

The ticker symbol for this is very close to the acronym for Xiao Long Bao (XLB), which helped me remember it better.

This is somewhat related to the Consumer Staples Select Sector SPDR Fund (XLP) ETF as the index includes stocks from the following sectors:

  • Food and staples retailing
  • Household products
  • Food products
  • Beverages
  • Tobacco
  • Personal products

In order to track the index, this fund implements a replication strategy where invests at least 95per cent, of its total assets in the securities comprising the index.

This fund can be considered as a defensive asset as it typically gives out regular dividends and steady earnings regardless of the health of the overall stock market.

The top 10 companies ( 71.27per cent of total assets) represented in this fund include:

Name Symbol Percentage of Assets
Procter & Gamble Co PG 16.43per cent
PepsiCo Inc PEP 10.31per cent
Coca-Cola Co KO 9.89per cent
Walmart Inc WMT 9.64per cent
Mondelez International Inc Class A MDLZ 4.69per cent
Altria Group Inc MO 4.64per cent
Philip Morris International Inc PM 4.45per cent
Costco Wholesale Corp COST 4.39per cent
Colgate-Palmolive Co CL 3.82per cent
Kimberly-Clark Corp KMB 3.01per cent

Although this ETF is more narrow, it let investors take a more focused position on the consumer staples sector in the U.S.

Over the last 5 years, the XLP ETF has produced annualised returns of 6.62per cent (as of 21 May 2020).

This fund also charges an expense ratio (net) of just 0.13per cent.

7) All that glitters is GLD — SPDR Gold Trust (GLD)

SPDR Gold Trust (GLD) is one of the largest gold ETFs in the world.

If you would like to invest in gold and have no place to store the bars of the precious metal in your home; this Gold ETF is for you.

This ETF actually acts as a proxy for the price of gold bullion and is considered a safe haven investment as in theory,  the investment will protect your capital when the stock market crashes.

Typically, the price of gold will have an inverse relationship with the popular index funds mentioned above. Although this ETF is very narrow, it is commonly used as a hedge against the stock market when it drops.

Over the last 5 years, the GLD ETF has produced annualised returns of 6.95per cent (as of May 21, 2020).

This fund also charges an expense ratio (net) of 0.40per cent.

ALSO READ: Why 2020 could be the best year to start your investment journey

Bonus — Covid-19 testing & treatments index (COVID19:Exchange)

The last index is not something you can invest in or buy at the moment.

However, I find that it is interesting to track during the Covid-19 pandemic as it provides insight into the U.S. stock market.

The index is an equal-weighted index of 29 companies that are testing and treating Covid-19 and consists of pharmaceutical and biotechnology companies like Cambridge, Foster City and Gilead Sciences.

Interestingly, there seems to be a strong relationship between the S&P500 and Covid-19 index, which lends support to some Wall Street Investors’ thesis that a vaccine will cause the financial markets to recover to previous highs.

Investing in US ETFs

At the end of the day, when investing in US ETFs, do remember that even though the ETF is already diversified, there will still be risk.

Also, be sure that you would buy the underlying assets that the fund invests in and remember that the performance quoted above represents past performance, which is no guarantee of future results.

This article was first published in SeedlyAll content is displayed for general information purposes only and does not constitute professional financial advice.

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