Best ETFs for 2020: the top performers
Check out our rundown of the best ETFs for 2020 – including those that have performed well since March’s sell-off, and those that pay dividends
Attitudes towards the best ETFs for 2020 are continually shifting – and consensus on the top ETFs back in January would be radically different to what analysts would pick right now. I’m not even going to explain the reasons why… you know.
So: with the benefit of hindsight from the past six months, what are the best ETFs to invest in 2020? What’s been doing well despite the market melodrama? We’re going to run through the exchange-traded funds that have been generating a buzz, and discuss the best ETFs with dividends.
Remind me… what is an ETF?
Before we crack on, just a quick reminder of what an exchange-traded fund actually is. This is a security that can bundle together stocks and commodities in one neat package – giving people exposure to a diverse range of assets. They also track movement in major indices such as the Nasdaq 100 and the FTSE. As an example, this means an ETF investor can experience a financial upside when the S&P 500 goes up… even if they don’t own any of the stocks on this index.
There had been hopes that some of the best ETFs for 2020 would track Bitcoin to some extent. Unfortunately, despite repeated applications being made to the US Securities and Exchange Commission, one hasn’t been able to hit the market just yet. Watch this space, as some in the crypto sector believe an upcoming change in leadership at the SEC could boost the prospects of a product launching.
The best ETFs to invest in
Now we’ve gone over all the niceties, let’s jump straight into some of the top ETFs.
As you’d expect, a lot of attention right now is being paid to exchange-traded funds in the healthcare sector. Owing to the impact of coronavirus (I had promised myself I was going to get through this article without mentioning it!) companies offering care and treatments have experienced a substantial rise in investor interest.
We cover this in further detail in our feature on biotech stocks, but funds tracking this sector have been regularly topping the list of the best ETFs to invest in. The SDPR S&P Biotech ETF has surged by almost 70 per cent since 16 March – and it’s also streets ahead of other exchange-traded funds that cover this sector.
If you’re anything like me, you will have been on Facebook and Google substantially more during the pandemic (mentioned it again!) – probably on an Apple iPhone. All of these companies (and dozens more) are constituents on the iShares US Technology ETF.
This fund has gained a reputation for being one of the best ETFs for 2020 because of how strongly the Nasdaq 100, which is home to a substantial number of major tech stocks, has been performing so far this year. Since 16 March, this ETF has risen by 45.7 per cent – taking it tantalisingly close to record highs that were last seen in February.
It is heavily weighted in favour of Microsoft, Apple, Facebook and Alphabet stock – Alphabet is Google’s parent company – with 50 per cent of the ETF’s value tied up in these four companies. Investors also get some exposure to other household names including Snap (Snapchat’s parent company) and Zoom Video Communications, which came into its own during the lockd… first half of 2020.
Do remember that a major downside with ETFs that focus more heavily on a small handful of companies is that things can go badly wrong if they suffer a downturn – and investors are far less likely to feel a benefit if a constituent with a smaller weighting goes on a bull run.
Another tech-focused alternative is the Vanguard Information Technology ETF. In terms of the bounceback it’s had from lows on 23 March, this is one of the top ETFs. This fund has gained 50 per cent in the space of three months – and it’s currently trading beyond record highs seen in February. It doesn’t just include the stocks of those who manufacture products for businesses and consumers, the ETF also tracks those who supply crucial components like semiconductors to big brands.
What is your sentiment on EZU?
This fund is described as a five out of five for risk, meaning that it isn’t for the faint-hearted. That said, the ETF’s 10 largest holdings in May were all established companies with a strong track record, representing 58.5 per cent of total net assets. The stocks in question, we hear you ask? Apple, Microsoft, Visa, Mastercard, Intel, NVIDIA, Cisco, Adobe, PayPal and Salesforce.com. (As you can see, this ETF has quite a financial flavour.)
Best ETFs for 2020: Other popular picks
Nasdaq released some helpful intelligence about which ETFs are in favour right now. Indeed, according to its Economics Research arm, these funds have actually accounted for a whopping 40 per cent of the value traded during the March sell-off. The US Global Jets ETF saw its assets under management grow by 142.6 per cent in the month to 8 June, while the iShares US Home Construction ETF enjoyed AUM growth of 64 per cent over the same period. Given that both of these industries were among the hardest hit by March’s carnage, is this a sign that investors believe these sectors have hit rock bottom, and share prices are going to start rebounding?
AUM isn’t the only metric that Nasdaq uses to calculate the best-performing ETFs – other factors include a fund’s potential for return, as well as the levels of inflows and outflows.
Some of the ETFs on the list are available in tokenized form on Currency.com. They include the Financial Select Sector SDPR Fund, which had AUM growth of 24 per cent in the month to 8 June. This long-standing ETF aims to track financial sector constituents on the S&P 500. Berkshire Hathaway, JPMorgan Chase & Co, Bank of America, Citigroup and Wells Fargo comprise the top five holdings.
Other tokenized ETFs available include the VanEck Vectors Oil Services ETF, with assets under management up 60.7 per cent in the month to 8 June. The companies tracked by this fund focus on providing equipment, services and drilling to the upstream sector.
The iShares MSCI Eurozone ETF has also enjoyed an uptick in demand recently. This is a diverse fund that can give foreign investors exposure to stocks in developed economies where the euro is used for currency. This fund’s top 10 holdings are diverse to say the least, and include the luxury brand Louis Vuitton Moet Hennessy, the French healthcare giant Sanofi, consumer staples behemoth Unilever, and the cosmetics and beauty brand L’Oreal.
You may also be looking for the best ETFs with dividends. This is where a fund collects the dividends paid out by the stocks in a portfolio and distributes them evenly to investors based on their holding. It’s a particularly popular investment strategy for people who are looking for a reliable income from their capital, typically in retirement. The SDPR S&P 500 ETF, which is available in tokenized form on Currency.com, tends to pay them on the final Friday of a financial quarter, but this does vary from fund to fund. Remember: many companies are actually cutting their dividends right now as they try to preserve cash.
And there you have it: a comprehensive snapshot of how ETFs are faring right now. The question now is whether these funds will be able to sustain the tearaway performance that they’ve seen over the last quarter.
FURTHER READING: Stock market forecast for the next five years