Best Index ETFs for 2022

Analysis February 18, 2022 at 04:05 PM Share & Print

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Index funds, especially index ETFs, are a low-cost, tax-efficient way to invest a client’s money. Index ETFs can be useful in implementing the appropriate asset allocation strategy for your clients. Here are some thoughts on picking top index ETFs for 2022.

Choosing the Best Index ETFs

While there is no one right metric to choose the best ETFs, these criteria can help narrow your search.

The Morningstar medalist ratings can be a quick, useful tool. In the spirit of the Olympics, they rate top ETFs as gold, silver or bronze, plus neutral and negative ratings for average and subpar funds. The medalist rankings take five factors into account:

Process: How are the ETF’s assets put to work?
Performance: What are its risk-adjusted returns over time?
People: Who manages the fund?
Parent: What company is offering the ETF?
Price: Does the fund offer a solid value proposition?

Expenses are another key metric to consider, especially with an index ETF. In this case, less is more.

Which Index Does the ETF Track?

It’s important that the ETF uses an index that is representative of its asset class and investment objective. This is important for asset allocation purposes and other reasons.

The fund’s level of assets under management is also a consideration. Not only do the best index ETFs tend to attract assets, but a larger asset base can also help to reduce the size of any bid/ask spread.

Let’s look at some of the top index ETFs offered by the biggest ETF providers. Please note that none of this should be construed as investment advice, but rather as some metrics that might be useful to you in screening and choosing index ETFs for your clients.

Return data is per Morningstar as of Jan. 31. The Total Stock Market ETFs are part of the large-cap blend category.

Vanguard ETFs

Vanguard offers an extensive line of ETFs. Of note here is that their ETFs are considered another share class of the corresponding mutual fund where applicable.

Total Stock Market

The Vanguard Total Stock ETF (ticker VTI) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.03% (3rd percentile).
Underlying index: CRSP U.S. Total Market Index.
AUM: $285 billion (2nd percentile).
Three-year trailing return: 39th percentile.
Five-year trailing return: 36th percentile.

Large-Cap Blend

The Vanguard S&P 500 ETF (ticker VOO) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.03% (3rd percentile).
Underlying index: S&P 500.
AUM: $281 billion (3rd percentile).
Three-year trailing return: 20th percentile.
Five-year trailing return: 17th percentile.

Mid-Cap Blend

The Vanguard Mid-Cap ETF (ticker VO) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.04% (2nd percentile).
Underlying index: CRSP U.S. Mid Cap Index.
AUM: $55 billion (1st percentile).
Three-year trailing return: 12th percentile.
Trailing return: 10th percentile.

Small-Cap Blend

The Vanguard Small Cap ETF (ticker VB) earns a Silver Morningstar rating. Analysts cite style drift issues that exceed the average for other funds in the category as the reason for a slightly lower ranking. Other metrics include:

Expense ratio: 0.05% (4th percentile).
Underlying index: CRSP Small Cap Index.
AUM: $48 billion (2nd percentile).
Three-year trailing return: 37th percentile.
Five-year trailing return: 16th percentile.

(Image: Shutterstock)

SPDR ETFs

SPRDs are offered by State Street Global Advisors (SSGA).

Total Stock Market

The SPDR Port S&P 1500 Comps Stock Market ETF (ticker SPTM) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.03% (3rd percentile).
Underlying index: S&P Composite 1500 Index.
AUM: $6 billion (8th percentile).
Three-year trailing return: 34th percentile.
Five-year trailing return: 30th percentile.

Large-Cap Blend

The SPDR Portfolio S&P 500 ETF Trust (ticker SPLG) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.03% (3rd percentile).
Underlying index: S&P 500.
AUM: $14 billion (10th percentile).
Three-year trailing return: 17th percentile.
Five-year trailing return: 15th percentile.

Mid-Cap Blend

The SPDR S&P Mid Cap 400 ETF Trust (ticker MDY) earns a Silver Morningstar rating. Other metrics include:

Expense ratio: 0.23% (12th percentile).
Underlying index: S&P MidCap 400 Index.
AUM: $20 billion (2nd percentile).
Three-year trailing return: 55th percentile.
Five-year trailing return: 52nd percentile.

Small-Cap Blend

The SPDR Portfolio S&P 600 Small Cap ETF (ticker SPSM) earns a Silver Morningstar rating. This is in comparison with other ETFs in this category.

Expense ratio: 0.05% (4th percentile).
Underlying index: S&P Small Cap 600 Index.
AUM: $4 billion (4th percentile).
Three-year trailing return: 37th percentile.
Five-year trailing return:: 21st percentile.

(Photographer: Michael Fein/Bloomberg)

BlackRock ETFs

BlackRock offers the popular ishares group of ETFs.

Total Stock Market

The iShares Core S&P Total US Stock Mkt ETF (ticker ITOT) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.03% (percentile).
Underlying index: S&P U.S. Total Market Index.
AUM: $44 billion (2nd percentile).
Three-year trailing return: 41st percentile.
Five-year trailing return: 38th percentile.

Large-Cap Blend

The iShares Core S&P 500 ETF (ticker IVV) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.03% (3rd percentile).
Underlying index: S&P 500.
AUM: $326 billion (1st percentile).
Three-year trailing return: 19th percentile.
Five-year trailing return: 17th percentile.

Mid-Cap Blend

The iShares Russell Mid-Cap ETF (ticker IWR) earns a Silver Morningstar rating. Other metrics include:

Expense ratio: 0.19% (10th percentile).
Underlying index: Russell Midcap Index.
AUM: $30 billion (2nd percentile).
Three-year trailing return: 22nd percentile.
Five-year trailing return: 20th percentile.

Small-Cap Blend

The iShares Core S&P Small-Cap ETF (ticker IJR) earns a Silver Morningstar rating. Other metrics include:

Expense ratio: 0.06% (4th percentile).
Underlying index: S&P Small Cap 600 Index.
AUM: $71 billion (1st percentile).
Three-year trailing return: 47th percentile.
Five-year trailing return: 25th percentile.

(Image: Bloomberg)

Schwab ETFs

Schwab offers 25 ETFs.

Total Stock Market

The Schwab US Broad Market ETF (ticker SCHB) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.03% (3rd percentile).
Underlying index: Dow Jones U.S. Broad Stock Market Index.
AUM: $23 billion (3rd percentile).
Three-year trailing return: 39th percentile.
Five-year trailing return: 37th percentile.

Large-Cap Blend

The Schwab US Large-Cap ETF (ticker SCHX) earns a Gold Morningstar rating. Other metrics include:

Expense ratio: 0.03% (3rd percentile).
Underlying index: Dow Jones U.S, Large-Cap Total Stock Market Index.
AUM: $33 billion (2nd percentile).
Three-year trailing return: 22nd percentile.
Five-year trailing return: 19th percentile.

Mid-Cap Blend

The Schwab US Mid-Cap ETF (ticker SCHM) earns a Silver Morningstar rating. Other metrics include:

Expense ratio: 0.04% (2nd percentile).
Underlying index: Dow Jones U.S. Mid Cap Index.
AUM: $10 billion (3rd percentile).
Three-year trailing return: 70th percentile.
Five-year trailing return: 34th percentile.

Small-Cap Blend

The Schwab US Small-Cap ETF (ticker SCHA) earns a Silver Morningstar rating. Other metrics include:

Expense ratio: 0.04% (3rd percentile).
Underlying index: Dow Jones U.S. Small Cap Total Stock Market Index.
AUM: $16 billion (3rd percentile).
Three-year trailing return: 56th percentile.
Five-year trailing return: 43rd percentile.

I hope this analysis will give you some ideas in choosing top-core domestic equity index ETFs for your client portfolios. Whatever databases or software that you use, it’s important to set appropriate criteria to use in your screening, and to look at each ETF in depth to ensure that it fits your client’s investing strategy.

(Photographer: Christopher Dilts/Bloomberg)