Kip ETF 20: The Best Cheap ETFs You Can Buy

iShares Core S&P 500 ETF

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 1.6%
• Expense ratio: 0.03%, or $3 annually for every $10,000 invested

There's nothing lurking behind this curtain: The iShares Core S&P 500 ETF (IVV (opens in new tab), $403.09) tracks the S&P 500 Index. That's it.

Its low expense ratio makes it one of the cheapest ways to get large-company stock exposure. In each of the past one, three and five years, on an annualized basis, the fund has roughly mirrored the performance of the broad-market benchmark, less expenses, of course.

iShares Core S&P Mid-Cap ETF

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 1.6%
• Expense ratio: 0.05%

We recommend holding the large-company iShares Core S&P 500 ETF with the iShares Core S&P Mid-Cap ETF (IJH (opens in new tab), $243.75) and the small-company edition, iShares Core S&P Small-Cap (which we'll get to next).

The strategy allows you to tailor your exposure to these pockets of the U.S. stock market more cleanly. This fund holds shares in 400 midsize-company stocks weighted by market value.

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Two energy companies, Targa Resources (TRGP (opens in new tab)) and EQT (EQT (opens in new tab)), along with materials firm Steel Dynamics (STLD (opens in new tab)) are top holdings. Mid-cap stocks have fallen further than their large-company brethren over the past 12 months. Core S&P Mid-Cap is down 14.9% over that stretch.

iShares Core S&P Small-Cap ETF

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 1.9%
• Expense ratio: 0.06%

The iShares Core S&P Small-Cap ETF (IJR (opens in new tab), $99.42) has held up better than the popular small-company Russell 2000 benchmark over the past 12 months, with a 9.7% loss, compared with a 16.0% decline in the index.

The reason rests with the construction of the index that this fund tracks; the index includes a profitability measure, which gives it a quality tilt that the Russell 2000 doesn't have. That has helped recently because high-quality fare was rewarded in the latter half of 2021.

The ETF currently holds 665 small-cap stocks with market values of between roughly $200 million and $12 billion; financial services, industrials and technology are its top sector exposures.

iShares MSCI USA ESG Select ETF

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 1.4%
• Expense ratio: 0.25%

Companies that score well on environmental, social and corporate governance (ESG) measures let you align your values with your investments, but they may also outperform the broad market over time, according to fans of ESG investing strategies. The 171 stocks in the iShares MSCI USA ESG Select ETF (SUSA (opens in new tab), $85.94), on average, fetch triple-A sustainability ratings, the highest score available from index provider and ESG-rating firm MSCI.

The portfolio doesn't own businesses involved in firearms or other weapons, fossil fuel extraction, thermal coal power, alcohol or tobacco. Over the past 12 months, the fund has lagged the S&P 500, in part because traditional energy companies have flourished and the fund holds only a handful. (The ETF holds six energy stocks, which make up 3.8% of the portfolio; the S&P 500 includes 21 energy stocks, which account for 4.6% of the index.) But over the past three years, MSCI USA ESG Select's 11.6% annualized return beat the S&P 500, which has a three-year annualized return of 10.3%.

Vanguard Total International Stock

• Kip ETF 20 classification: Core stock fund
• Dividend yield: 3.9%
• Expense ratio: 0.07%

Foreign stocks have had a disappointing run relative to U.S. stocks in recent years, so investors have given them short shrift. But the Vanguard Total International Stock (VXUS (opens in new tab), $52.68) is an all-in-one ETF that allows investors to keep a toehold, to whatever degree they wish, in developed and emerging markets because it owns nearly every foreign stock in the world.

Over the past one, three and five years, the fund has outpaced the MSCI All World Country ex USA Index.

Schwab U.S. Dividend Equity ETF

• Kip ETF 20 classification: Dividend stock fund
• Dividend yield: 3.4%
• Expense ratio: 0.06%

The Schwab U.S. Dividend Equity ETF (SCHD (opens in new tab), $73.34) sifts the U.S. stock universe for 100 of the best high-dividend payers. The companies must have a history of consistent payouts and compare well with peers on measures such as cash flow, debt and profitability. Real estate investment trusts (REITs) are excluded.

Merck (MRK (opens in new tab)), Pfizer (PFE (opens in new tab)), IBM (IBM (opens in new tab)) and Coca-Cola (KO (opens in new tab)) are top holdings. Over the past 12 months, the fund has held up well against the broad-market downdraft: It is off 1.7%, which is better than the 10% loss in the S&P 500. The ETF yields 3.4%.

Vanguard Dividend Appreciation ETF

• Kip ETF 20 classification: Dividend stock fund
• Dividend yield: 2.0%
• Expense ratio: 0.06%

Dividend growth matters most in the Vanguard Dividend Appreciation ETF (VIG (opens in new tab), $150.24). Only companies with at least a decade of consistent dividend increases are eligible.

This index fund tracks the S&P U.S. Dividend Growers benchmark, which is market-value weighted; Johnson & Johnson (JNJ (opens in new tab)), Microsoft (MSFT (opens in new tab)) and UnitedHealth Group (UNH (opens in new tab)) were top holdings at last report. The tilt toward dividend growers has helped in recent months: Dividend Appreciation has lost 5.5% over the past 12 months, or less than the 10% loss in the S&P 500. The fund currently yields 1.9%.

WisdomTree Global ex-US Quality Dividend Growth Fund

• Kip ETF 20 classification: Dividend stock fund
• Dividend yield: 4.0%
• Expense ratio: 0.42%

Growth-oriented stocks are out of favor, which has been a drag on the WisdomTree Global ex-US Quality Dividend Growth Fund's (DNL (opens in new tab), $32.60) performance since the start of the year. And the war in Ukraine has weighed on European markets, where 44% of this ETF's assets are invested.

But the fund has a few things going for it in the near term. Its focus on high-quality companies with dependable profits will help in a recession. And the promise of muted stock market returns in the future means dividends will matter even more.

Holdings are weighted by payout – the bigger the dividend, the bigger the stock's share of the fund's assets. Although this ETF has lagged the MSCI EAFE Index over the past 12 months, its three- and five-year returns beat the pants off the benchmark. Healthcare company Novo Nordisk (NVO (opens in new tab)) and materials firms BHP Group (BHP (opens in new tab)) and Anglo American were top holdings at last report. The fund yields 4.0%.

Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 39.6%*
• Expense ratio: 0.62%

Commodity prices may take a breather after running hot in recent months, but they are expected to pick up again in 2023. Take advantage of any pauses to ease a small portion of your portfolio into the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC (opens in new tab), $17.53) over time. It's the biggest, most liquid commodities ETF available.

As its name suggests, the fund avoids the troublesome K-1 form, a tax form the IRS issues annually for an investment in a partnership. That means instead of primarily using futures contracts to get exposure to a basket of commodities (including zinc, crude oil, gold, corn and aluminum, among others), the fund uses other financial derivatives that make it simpler for investors at tax time. But the results are the same. Over the past three years, this fund has delivered an 18.4% return, which beat 85% of its peers.

* PBDC pays out a variable annual distribution. The current yield, then, isn't indicative of what an investor should expect year in and year out.

Invesco S&P 500 Equal Weight Financials ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 2.1%
• Expense ratio: 0.40%

The Invesco S&P 500 Equal Weight Financials ETF (RYF (opens in new tab), $55.38) spreads its assets evenly among 66 financial stocks, a mix of insurers, banks and consumer finance firms, among others, and rebalances quarterly.

The equal weighting gives the ETF a tilt toward midsize companies and more value-priced shares compared with other financial-sector funds – and recently, the result has been better returns. This ETF outpaced the typical financial fund over the past one, three and five years. It yields 2.0%.

Invesco S&P 500 Equal Weight Health Care ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 0.7%
• Expense ratio: 0.40%

Like its financial-sector sibling, the Invesco S&P 500 Equal Weight Health Care ETF (RYH (opens in new tab), $282.47) holds 60-odd equally weighted stocks – in this case, healthcare stocks in the S&P 500. The portfolio is a mix of biotech and pharmaceuticals, life sciences tools and services, healthcare equipment and supplies, care providers, and services firms.

Healthcare stocks have had a bumpy year, especially midsize companies. As a result, the fund is down 7.1% over the past 12 months.

Invesco WilderHill Clean Energy ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 3.1%
• Expense ratio: 0.61%

It will take multiple sources of clean energy to get to a net-zero economy, when carbon emissions are balanced by absorption. That's why we like the Invesco WilderHill Clean Energy ETF (PBW (opens in new tab), $50.44), which tracks an index of companies focused on solar and wind power, advanced energy storage, cleaner fuels and biofuels, and innovative power delivery and energy conversion.

But for more than a year now, clean-energy stocks have been out of favor as rising oil prices have turned investors' attention back to traditional energy stocks. Don't lose perspective: Though the ride may be rough, renewables are the future. Governments around the world are creating policies to boost the use of renewable energy, and "that's a favorable backdrop for any sector," says Invesco's Bloom. Also, super-high gas and oil prices may revive consumer interest in alternative energy sources.

For those with a long investment time horizon and steely nerves, it's a good time to get in. The fund has lost 39.3% over the past 12 months.

Technology Select Sector SPDR Fund

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 0.9%
• Expense ratio: 0.10%

The Technology Select Sector SPDR Fund (XLK (opens in new tab), $139.91) holds 76 stocks – mostly large tech and tech-related companies. You'll find the same names you usually see at the top of many large-company stock funds; Microsoft, Apple (AAPL (opens in new tab)), Visa (V (opens in new tab)) and Mastercard (MA (opens in new tab)), for instance, were top holdings recently.

But this collection of tech stocks boasted the best net profit margins and return on equity (a measure of profitability) of all the tech funds we looked at. That's a good quality to have if the economy slides into a recession. Over the past three years, the fund has returned 18.8% annualized, ahead of the 8.5% average three-year gain of the typical tech fund.

Vanguard FTSE Europe ETF

• Kip ETF 20 classification: Strategic stock fund
• Dividend yield: 4.3%
• Expense ratio: 0.08%

The war in Ukraine and higher inflation snuffed out economists' expectations for growth in gross domestic product in the eurozone in 2022. Instead of 4.0% growth in 2022, European Union economists now expect 2.7% this year.

Over the past 12 months, the Vanguard FTSE Europe ETF (VGK (opens in new tab), $54.27) has declined 19.2%. That's close to bear-market territory (and the fund did decline by more than 20% at one point over the period). But the drop brings a silver lining: "European stocks are so cheap that there's a big opportunity there," says J.P. Morgan Asset Management chief global strategist David Kelly. And this ETF, which tracks companies of all sizes in 16 European countries, offers one of the lowest-cost ways to invest in the region.

Fidelity Total Bond ETF

• Kip ETF 20 classification: Core bond fund
• SEC yield: 3.8%*
• Expense ratio: 0.36%

Because bond prices fall when interest rates rise, it's no surprise that bond funds have had a tough go lately. The actively managed Fidelity Total Bond ETF (FBND (opens in new tab), $47.51) sports a duration – a measure of interest-rate sensitivity – of 6.1 years, which implies a 6.1% drop in the fund's net asset value if rates rise by one percentage point over the course of one year.

The ETF's duration is lower than the duration of the Bloomberg U.S. Aggregate bond Index and one reason the fund has held up better than the Agg over the past 12 months. With more rate hikes to come, the managers favor short-term investment-grade bonds, high-yield IOUs, leveraged loans (which come with rates that reset every three months) and foreign corporate credit. The fund currently yields 3.8%.

* 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: 4.3%
• Expense ratio: 0.10%

With interest rates on the rise, we like the look of funds that are less sensitive to interest rate shifts. The Invesco BulletShares 2026 Corporate Bond ETF (BSCQ (opens in new tab), $19.54) is a target-maturity fund, so it works differently than most bond funds.

All of the investment-grade corporate debt in this fund's portfolio will mature in the last six months of 2026, and on or about Dec. 15 of that year, the fund will close and return remaining assets to shareholders. The short maturity of the bonds makes the fund less sensitive to interest rate shifts. As a result, the ETF's 30-day yield, 4.3% at last report, exceeds its duration of 3.8 years. Since the start of the year, the fund has lost 8.2%; by contrast, the broad bond index has lost 9.8%.

SPDR DoubleLine Total Return Tactical ETF

• Kip ETF 20 classification: Core bond fund
• SEC yield: 2.6%
• Expense ratio: 0.55%

The SPDR DoubleLine Total Return Tactical ETF (TOTL (opens in new tab), $42.72) – a core-plus bond fund (the plus means it can hold up to 20% of assets in below-investment-grade bonds) – has held up better than the Agg index over the past 12 months, albeit with a 9.3% loss.

The managers have tilted toward non-agency mortgage-backed securities, investment-grade corporates and commercial mortgage-backed securities, and they have lightened up on Treasuries and government-backed mortgage debt. But more interest rate hikes are coming, and a slowdown in economic growth points to more volatility, too. The fund has a duration of 5.2 years and yields 4.7%.

BlackRock Ultra Short-Term Bond ETF

• Kip ETF 20 classification: Opportunistic bond fund
• SEC yield: 2.0%
• Expense ratio: 0.08%

The BlackRock Ultra Short-Term Bond ETF (ICSH (opens in new tab), $50.07) focuses on a mix of high-quality government, corporate and securitized bonds with maturities between one day and less than one year.

That minimizes the fund's sensitivity to interest rate moves, but it doesn't eliminate it. As a result, this fund has lost 0.4% over the past 12 months. But that's far less than the 11.2% loss in the Agg index. The fund sports a 0.4-year duration and yields 1.9%, a considerable leap from the fund’s 0.3% yield 12 months ago.

Invesco Senior Loan ETF

• Kip ETF 20 classification: Opportunistic bond fund
• SEC yield: 5.0%
• Expense ratio: 0.65%

Senior loans, or bank loans, offer some protection against rising interest rates because they pay a coupon that adjusts every few months in step with a short-term-bond benchmark. But they aren't totally immune to interest rate shifts. On top of that, war in Ukraine pushed investors toward sleep-tight investments, which put pressure on debt with below-investment-grade ratings, including bank loans. Also, rising rates pushed 10-year Treasury yields to more than 3%, making the 4% yield on bank loans less attractive by comparison.

Even so, higher rates are still on deck, which makes these adjustable loans appealing. And bank-loan funds have outperformed nearly every other bond fund category over the past 12 months. The Invesco Senior Loan ETF (BKLN (opens in new tab), $20.89) has a 0.1-year duration and yields 4.7%.

Vanguard Tax-Exempt Bond ETF

• Kip ETF 20 classification: Opportunistic bond fund
• Dividend yield: 2.9%
• Expense ratio: 0.05%

Higher interest rates this year got the better of municipal bonds, too, which typically pay interest that's exempt from federal income tax. But that's created an attractive entry point for muni-bond investors, especially those in higher tax brackets.

Plus, an imbalance between muni-bond supply and demand will provide "a strong backdrop for performance" for the rest of 2022, says Wells Fargo Investment Institute's fixed income strategist Brian Rehling. Most local municipalities are in good financial shape, too.

The Vanguard Tax-Exempt Bond ETF (VTEB (opens in new tab), $50.80) has outperformed its peer group (funds that focus on medium-maturity muni bonds) every calendar year since inception in 2016. Its current 2.9% yield translates to a 3.8% tax-equivalent yield for investors in the 24% federal income tax bracket. The ETF's duration is 4.9 years.

The Kip ETF 20

As of March 31, 2023. *12-month yield. SOURCES: Morningstar Direct, MSCI, S&P Dow Jones Indices.