If you're looking for the top exchange-traded funds, or ETFs, on Wall Street right now, you may be surprised to find that exchange-traded products winning the biggest praise from analysts come from many different corners of the market. There are bond funds and stock funds, megafunds with billions of assets, and smaller, more recently launched funds with a comparatively modest following. That's because what goes into the ranking of top-rated ETFs right now is often about the unique tactical nature of a fund and its approach rather than a broad strategy that is easily replicated by peers. So what exactly are the best ETFs right now? Here are nine funds with perfect five-star ratings overall from ETF research experts at both Morningstar and Lipper.
iShares U.S. Medical Devices ETF
The health care sector has been incredibly volatile over the last year or so, for obvious reasons. As a result, many analysts have been rethinking their ratings of funds in this space. One fund that consistently gets top marks, however, is the iShares U.S. Medical Devices ETF (IHI). With IHI, investors get exposure to companies making everything from specialized heart valves to high-tech surgery lasers. The fund's portfolio only includes 66 holdings at present, such as Thermo Fisher Scientific (TMO) and Medtronic (MDT) – not surprising, given its focused approach. IHI gets five-out-of-five ratings from Morningstar and Lipper across the board, including in its overall rank. It also has an annual expense ratio of 0.42%, or $42 for every $10,000 invested.
Vanguard Mid-Cap ETF
Small-cap stocks have seen some big volatility as a result of the pandemic, but a few midcap funds have done significantly better at providing consistent returns simply by moving a half step toward larger companies without going all-in on blue-chip megacaps. This Vanguard fund (VO) has such a "Goldilocks" approach, winning top rankings by relying on stocks that aren't too big to be stuck in their ways but aren't so small that they fall apart in tougher times. Right now, these include social media mainstay Twitter (TWTR) and copper mining company Freeport-McMoRan (FCX). The fund earned a five-out-of-five rating from Lipper in all four categories – for three-year performance, five-year performance, 10-year performance and in the overall category. It also gets five stars from Morningstar overall and in the 10-year category. VO has an expense ratio of 0.04%.
Vanguard S&P 500 ETF
If you've ever looked at sophisticated ETFs and wondered what all the fuss is about, then this tried-and-true index fund is worth a look for its simplicity as well as its top ratings. VOO (VOO) is benchmarked to the S&P 500 index (.SPX) of the top U.S. companies like Apple (AAPL) and Microsoft Corp. (MSFT), without any additional complications. It's elegantly simple – and based on the fact that active managers often underperform, it's a lower-risk way to approach Wall Street, too. This fund gets five stars from Morningstar overall and for 10-year performance metrics, but wins a perfect five-out-of-five from Lipper overall as well as in short, medium and long-term time frames. The fund has a low expense ratio of 0.03%.
iShares Agency Bond ETF
An agency bond is a security issued by a governmental agency other than the U.S. Treasury. This unique sliver of the bond market is characterized by the same very low-risk profile as Treasuries, given the fact that they are still backstopped by Uncle Sam, but often higher rates of return based on the fact these bonds aren't as highly sought after by global investors. Think mortgage debt through Fannie Mae, or bonds issued by the federally owned Tennessee Valley Authority (TVC). AGZ (AGZ) focuses only on this specific category of bonds through fewer than 70 different positions in the fund. As a result of the decent returns and lower risk profile, this iShares ETF gets a five-star rating across the board from Morningstar. AGZ has an expense ratio of 0.2%.
VanEck Vectors Fallen Angel High Yield Bond ETF
This VanEck fund (ANGL) has a clever name, but the "fallen angels" it's talking about are really just corporations that have seen better days and no longer win investment-grade rankings. As a result, their debt offerings are classified as junk bonds – meaning they carry higher risk but are also forced to offer investors a premium yield in exchange for taking on a bit more uncertainty. Case in point: One of the top positions at present is a Carnival Corp. (CCL) bond that yields a tremendous 11.5%. While there's clearly risk for this company in the wake of the pandemic, there's also impressive returns if the bond payments are made on schedule. ANGL seems to have a knack for finding the bonds like this that pay off, as evidenced by a five-star rating overall from Morningstar and Lipper. It comes with an expense ratio of 0.35%.
ARK Innovation ETF
The ARK (ARKK) family of funds generally is not as well-established as behemoths like Vanguard, but ARKK is the crown jewel of this shop with an inception date of 2014 and total assets of more than $20 billion. As the name implies, it's focused on innovative companies rather than a vanilla market sector. At present, top stocks include electric vehicle maker Tesla (TSLA), streaming video play Roku (ROKU) and mobile payments provider Square (SQ), to name few. The fund isn't old enough for 10-year analysis, but it gets five stars overall and for both the three-year and five-year performance windows by Morningstar. It gets five-out-of-five from Lipper in those categories as well. ARKK's expense ratio is a bit higher, at 0.75%.
ProShares Long Online/Short Stores ETF
One of the most unique funds on this list, CLIX (CLIX) is a fund that goes "long" on online retailers like Amazon.com (AMZN) and Alibaba Group Holdings (BABA) to profit from their success and "short" the traditional brick-and-mortar retailers like Best Buy (BBY) and Dick's Sporting Goods (DKS). CLIX has only been around since the end of 2017; however, it has made a name for itself in short order among Wall Street analysts. The ProShares fund gets a five-star rating overall and in the three-year category from Morningstar, and a five-out-of-five in both categories from Lipper on top of that. The fund has an expense ratio of 0.65%.
WisdomTree U.S. LargeCap Dividend Fund
This WisdomTree fund (DLN) is among the top-rated dividend ETFs out there because it is reliant on some of the most stable large-cap companies on Wall Street with a long history of generous payouts. Think stocks like consumer products giant Procter & Gamble (PG) and health care icon Johnson & Johnson (JNJ). It doesn't have the biggest yield on the planet, with a current yield of about 2.5%, but that's still significantly higher than the roughly 1.5% yield for the S&P 500 and 1.7% for 10-year Treasuries at present. DLN gets five stars overall from Morningstar, but long-term income investors will be equally pleased to see it gets top marks in the longest-term 10-year category from both Morningstar and Lipper. DLN comes with an expense ratio of 0.28%.
iShares MSCI KLD 400 Social ETF
With an ever-increasing segment of investors interested in social responsibility on Wall Street, DSI (DSI) is the right fund at the right time with a focus on an index of 400 major U.S. corporations that are comparatively better than their peers on these issues. The MSCI KLD 400 Social Index, on which this iShares fund is founded, is essentially the popular S&P 500 index, excluding 100 companies seen as less progressive on environmental, social and governance issues – collectively known as ESG. In other words, you'll still find companies like Google-parent Alphabet (GOOG, GOOGL), which has invested heavily in making its corporate campus green, but you won't find "vice" stocks like firearm or alcohol manufacturers. DSI has top overall ratings from both Morningstar and Lipper, as well as top ratings in both the three-year and five-year categories on top of that. The fund has an expense ratio of 0.25%.
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