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ETFs are a simple and robust way to access a huge variety of different industries, sectors, and asset classes. The universe of ETFs these days is practically as diverse as the whole stock market, and investors can use this broad access to create portfolios that capture assorted and thematic moves in the economy.
The three ETFs in this article are Zacks Rank #1 (Strong Buy) ETFs, indicating strong near-term expectations. Furthermore, the range of different stocks in the ETFs collectively builds a deeply diversified collection of companies with just three investment products.
It should be noted that as these are industry and theme specific ETFs, they carry more risk than broad market funds. In general, I think they are useful as compliments to diversified portfolios for investors who want to pursue a specific investing theme.
Image Source: Zacks Investment Research
Dynamic Software
The Invesco Dynamic Software ETF is a fund comprised of 30 of the leading-edge software companies in the U.S. The Fund leans more heavily into small and mid-cap stocks but does also include large-cap stocks (20%). The five largest holdings are Roblox RBLX, Electronic Arts EA, Activision Blizzard ATVI, Fortinet FTNT, and Cadence Design Systems CDNS, which make up 27% of the total holdings.
PSJ, like many of the technology adjacent stocks and sectors, had a very challenging 2021 and 2022 and during that time took a -55% haircut. However, that means if investors are looking today, you are buying the fund at a considerable discount. Additionally, even with such a brutal two-year performance, PSJ has compounded at 10% annually over the last five years and 12.5% annually since inception.
Image Source: Zacks Investment Research
PSJ has been building out a tight consolidation below its pre-covid highs over the last 12 months, which has created an interesting technical trade setup. If PSJ can trade above $102 convincingly, it may indicate a breakout that leads the ETF much higher. Alternatively, if it trades below $90, it may mean there is more downside.
Image Source: TradingView
PSJ is an ETF that carries higher than normal risk, as it holds a collection of high growth, high volatility stocks. The other side to that is when times are good, PSJ will have very high returns. With all of that considered, so long as investors allocate conservatively to such a fund, it should be a nice addition to any portfolio. PSJ has an expense ratio of 0.53%.
Dividend Growth
IShares Core Dividend Growth ETF (DGRO - Free Report) is a fund that focuses on owning stocks based in the U.S. that have a history of consistently raising dividends. DGRO is on the other side of the spectrum as PSJ in terms of risk profile. Because it is a much more conservative collection of stocks, it offers a perfect compliment to the high growth, high volatility nature of PSJ.
DGRO has compounded at an annual rate of 11% over the last five years, and 11% annually since inception. During the very challenging bear market of 2022 it showed impressive resilience as it was down just -7%, which was much better than the S&P 500 -18% drop.
Additionally, as a dividend focused fund, DGRO offers a very nice dividend yield. Over the last year, the fund has distributed a yield of 2.4%, which is paid quarterly.
Image Source: Zacks Investment Research
DGRO leans heavily towards recognizable large-cap stocks. Some of the top ten holdings include Microsoft MSFT, Exxon Mobil XOM, JP Morgan JPM, Procter and Gamble PG, and Home Depot HD. DRGO has an expense ratio of 0.08%.
Healthcare
The SPDR Healthcare Select Sector ETF (XLV - Free Report) is another Zacks Rank #1 (Strong Buy) ETF that I think adds a good mix to any investment portfolio. XLV includes stocks from pharmaceuticals, health care equipment and supplies, health care providers and services, biotechnology, life sciences tools and services, and health care technology. The fund leans heavily towards large-cap stocks.
The top five holdings in XLV are UnitedHealth Group UNH, Johnson and Johnson JNJ, Eli Lily LLY, AbbVie ABBV, and Merck MRK to make up 35% of the total holdings.
XLV has been a very strong performer, boasting a 13% average annual return over the last five years. Additionally, during 2022, which was so challenging for stocks, XLV showed tremendous resilience and was down just -2% versus the market’s -18%.
Image Source: Zacks Investment Research
XLV offers a nice risk return profile, which I think combines well with the other two recommended ETFs. Healthcare is clearly a defensive sector considering how well it performed in 2022, but also has the ability to provide market beating returns. These high returns come from the innovative nature of the sector, while the defensiveness is a result of people always needing healthcare. XLV has an expense ratio of 0.1%.
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Build a Unique Portfolio with 3 Top Ranked ETFs
ETFs are a simple and robust way to access a huge variety of different industries, sectors, and asset classes. The universe of ETFs these days is practically as diverse as the whole stock market, and investors can use this broad access to create portfolios that capture assorted and thematic moves in the economy.
The three ETFs in this article are Zacks Rank #1 (Strong Buy) ETFs, indicating strong near-term expectations. Furthermore, the range of different stocks in the ETFs collectively builds a deeply diversified collection of companies with just three investment products.
It should be noted that as these are industry and theme specific ETFs, they carry more risk than broad market funds. In general, I think they are useful as compliments to diversified portfolios for investors who want to pursue a specific investing theme.
Image Source: Zacks Investment Research
Dynamic Software
The Invesco Dynamic Software ETF is a fund comprised of 30 of the leading-edge software companies in the U.S. The Fund leans more heavily into small and mid-cap stocks but does also include large-cap stocks (20%). The five largest holdings are Roblox RBLX, Electronic Arts EA, Activision Blizzard ATVI, Fortinet FTNT, and Cadence Design Systems CDNS, which make up 27% of the total holdings.
PSJ, like many of the technology adjacent stocks and sectors, had a very challenging 2021 and 2022 and during that time took a -55% haircut. However, that means if investors are looking today, you are buying the fund at a considerable discount. Additionally, even with such a brutal two-year performance, PSJ has compounded at 10% annually over the last five years and 12.5% annually since inception.
Image Source: Zacks Investment Research
PSJ has been building out a tight consolidation below its pre-covid highs over the last 12 months, which has created an interesting technical trade setup. If PSJ can trade above $102 convincingly, it may indicate a breakout that leads the ETF much higher. Alternatively, if it trades below $90, it may mean there is more downside.
Image Source: TradingView
PSJ is an ETF that carries higher than normal risk, as it holds a collection of high growth, high volatility stocks. The other side to that is when times are good, PSJ will have very high returns. With all of that considered, so long as investors allocate conservatively to such a fund, it should be a nice addition to any portfolio. PSJ has an expense ratio of 0.53%.
Dividend Growth
IShares Core Dividend Growth ETF (DGRO - Free Report) is a fund that focuses on owning stocks based in the U.S. that have a history of consistently raising dividends. DGRO is on the other side of the spectrum as PSJ in terms of risk profile. Because it is a much more conservative collection of stocks, it offers a perfect compliment to the high growth, high volatility nature of PSJ.
DGRO has compounded at an annual rate of 11% over the last five years, and 11% annually since inception. During the very challenging bear market of 2022 it showed impressive resilience as it was down just -7%, which was much better than the S&P 500 -18% drop.
Additionally, as a dividend focused fund, DGRO offers a very nice dividend yield. Over the last year, the fund has distributed a yield of 2.4%, which is paid quarterly.
Image Source: Zacks Investment Research
DGRO leans heavily towards recognizable large-cap stocks. Some of the top ten holdings include Microsoft MSFT, Exxon Mobil XOM, JP Morgan JPM, Procter and Gamble PG, and Home Depot HD. DRGO has an expense ratio of 0.08%.
Healthcare
The SPDR Healthcare Select Sector ETF (XLV - Free Report) is another Zacks Rank #1 (Strong Buy) ETF that I think adds a good mix to any investment portfolio. XLV includes stocks from pharmaceuticals, health care equipment and supplies, health care providers and services, biotechnology, life sciences tools and services, and health care technology. The fund leans heavily towards large-cap stocks.
The top five holdings in XLV are UnitedHealth Group UNH, Johnson and Johnson JNJ, Eli Lily LLY, AbbVie ABBV, and Merck MRK to make up 35% of the total holdings.
XLV has been a very strong performer, boasting a 13% average annual return over the last five years. Additionally, during 2022, which was so challenging for stocks, XLV showed tremendous resilience and was down just -2% versus the market’s -18%.
Image Source: Zacks Investment Research
XLV offers a nice risk return profile, which I think combines well with the other two recommended ETFs. Healthcare is clearly a defensive sector considering how well it performed in 2022, but also has the ability to provide market beating returns. These high returns come from the innovative nature of the sector, while the defensiveness is a result of people always needing healthcare. XLV has an expense ratio of 0.1%.