Olé! Despite more rate hikes, a potential recession, and most recently, a downgrade of the US credit rating by a major credit rating agency, the bulls have been in charge this year—the S&P 500 has gained roughly 18% year to date. And investors have been using ETFs in large part to ride that momentum.
If you are interested in adding ETFs to your investment mix, Fidelity's ETF ScreenerLog In Required can help you quickly search for opportunities. Here are 3 ETF screens to think about with top results for each.
It’s looking like a growth year
Growth stocks—and tech in particular—have outrun value stocks thus far this year (see Growth is beating value in 2023 chart below). Big tech’s resurgence has computed the biggest gains for growth stocks. Another silver lining for growth stocks has been the hope that the Fed may be nearing the end of their plans to raise interest rates (many growth companies aggressively borrow to fund new projects, making the level of interest rates very important for these types of businesses).
If you want to explore growth-focused ETFs, there are a number of screening criteria that you can apply in the Fidelity.com ETF screener. For example, here are 10 ETFs with a "very high" historical earnings growth percentage (24.8% or higher) and a "very high" cash flow growth percentage (22.4% or higher), plus a "very high" 90-day trading volume average (185.2K or higher) to filter for stocks with strong liquidity, sorted by net assets, as of August 3, 2023:
- Energy Select Sector SPDR® Fund (
) - SPDR® S&P Oil & Gas Exploration & Production ETF (
) - SPDR® S&P Metals and Mining ETF (
) - Pacer US Cash Cows 100 ETF (
) - First Trust Energy Alphadex® Fund (
) - Fidelity® MSCI Energy Index ETF (
) - Flexshares Morningstar Global Upstream Natural Resources (
) - First Trust Nasdaq Oil & Gas ETF (
) - First Trust Rising Dividend Achievers ETF (
) - Vanguard Energy Index Fund ETF Shares (
)
After running any screen, there are a number of factors to think about. For example, you should be aware of the potential for concentration risk. This is basically equivalent to putting your eggs in a single basket—if you are not diversified across the rest of your investments. This list, for instance, is dominated by energy- and mining-focused ETFs.
Saddling up with value
Last year, value stocks appeared to have seized momentum by the horns, outperforming growth stocks for the first time in years. That led some investors to think it may be value stocks' turn for market leadership.
While that hasn’t happened this year, value stocks have been in the green. Moreover, some value-oriented investors argue that growth stock valuations have generally become expensive in the wake of the global pandemic. "The market's COVID surge lifted the valuation difference between growth and value stocks to extremes," says Matt Friedman, manager of the Fidelity® Value Strategies Fund (
If you are interested in exploring value-focused ETFs, there are several screening criteria that you can utilize. For example, here are 10 ETFs with a "very low" price-to-book ratio (under 10.5), a "very low" price-to-cash flow ratio (under 7.0), and a "very low" price-to-earnings ratio (under 10.5), sorted by net assets, as of August 3, 2023:
- iShares MSCI EAFE Value ETF (
) - iShares Russell 2000 Value ETF (
) - Schwab Fundamental International Large Company Index ETF (
) - Dimensional US Targeted Value ETF (
) - Avantis US Small Cap Value ETF (
) - Vanguard International High Dividend Yield Index Fund ETF (
) - Dimensional International Value ETF (
) - iShares MSCI Brazil (
) - Schwab Fundamental Emerging Markets Large Company ETF (
) - iShares International Select Dividend ETF (
)
Another important step you can take after running a screen is to evaluate the quality of the list that is generated. Does it appear that the screen results match your search criteria? Do they align with your objectives? Assessing the screen results as a whole can help you figure out if it's finding what you are interested in. For this list, do the ETF results align with an objective to find value-focused investments?
Highly rated
If you want to leverage the expertise of third-party analysts, there are a couple of options in the Fidelity.com ETF Screener, one of which is ratings from data provider FactSet. You can sort by highly rated ETFs based on FactSet’s analysis, and you have the ability to add in some filters of your own on top of these ratings.
For example, here are 10 ETFs with an "A" rating from FactSet—based on multiple fundamental factors—plus those with a "very low" net expense ratio (less than 0.30%), a "very low" tracking error (less than 5.41%), a "very low" tax cost ratio (less than 0.73%), and ETFs with a 0 or negative premium/discount 1-year average, sorted by net assets, as of August 3, 2023:
- Goldman Sachs ActiveBeta® US Large Cap Equity ETF (
) - SPDR® Nuveen Bloomberg Short Term Municipal Bond ETF (
) - iShares MSCI USA ESG Select ETF (
) - Invesco PureBeta MSCI USA ETF (
) - iShares Dow Jones US ETF (
) - FlexShares Morningstar US Market Factors Tilt Index Fund (
) - Franklin US Large Cap Multifactor Index ETF (
) - iShares Morningstar US Equity ETF (
) - Fidelity® Quality Factor ETF (
)
Another tip when evaluating the results of an ETF screen is to take a look at the individual holdings. You can find an ETF's components on its ETF snapshot page on Fidelity.com, under Portfolio Composition. On that page, you can also find the ETF's style (value, growth, or blend) and size (large, mid, or small), as well as ratings and key statistics. This list is a diverse group of ETFs, and you may be able to get a better sense of each one by looking at the individual holdings.
Digging deeper into your ETFs
If you think one or more of the ETFs identified by a screen is worth considering to help manage the risk in your portfolio or achieve your objectives, your next step should be to research it further. And always remember to evaluate a fund's costs, including the following:
- Expense ratio: Look for low expense ratios to help reduce your overall costs.*
- Bid-ask spread: Look for small bid-ask spreads to help reduce costs of investing.
- Tracking error: Look for a low tracking error to find ETFs that indicate a better job of replicating their benchmark indexes.
If you find ETFs with similar objectives, you could compare their expense ratios, bid-ask spreads, and/or tracking error to find the better deal. And, as always, you should fully understand the risks involved in any investment strategy.