ETF ideas with stocks at all-time highs

Using a screener to sort for investing ideas with the S&P 500 at a new record.

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A superficial look at some markets shows they have completely recovered their COVID-19-induced losses. In the US, the S&P 500 Index hit a new all-time high this week, closing above 3,400 for the first time ever. However, a closer look shows that roughly half of the stocks in the S&P 500 have not recouped all of their losses since the March bottom, and are still down for the year.1 This stratification within the S&P 500 illustrates why it’s important to always be selective (implement an appropriate and well diversified asset mix) when considering new investments for your portfolio—even if the market broadly appears to be trending higher.

If you are interested in exploring exchange-traded funds (ETFs) to help build a diversified portfolio, consider using Fidelity's ETF Screener to quickly sort through a lot of data. You can search for ETFs using a variety of characteristics like the fund's objectives, fundamentals, technicals, performance, volatility, trading characteristics, tax considerations, and analyst ratings.

Below, we feature 3 ETF screens, plus the top 10 results for each.

1. 5-star ETFs

If you are unfamiliar with screeners or don't know where to get started, one way to get going is to utilize analyst ratings. Ratings from MorningstarTM and FactSet are available on Fidelity.com. An ETF's Morningstar Rating is a quantitative assessment of the fund's past performance that accounts for both risk and return, with funds earning between 1 (lowest) and 5 (highest) stars. An ETF’s FactSet rating is based on a variety of metrics that account for both historical risk and return, with funds earning between an F (worst) and A (best) grade. Of course, these ratings are not necessarily predictive of future absolute or relative performance (and these screening criteria and results don’t constitute recommendations from Fidelity).

As of August 27, 2020, here are the top 10 results of a screen for 5-star Morningstar-rated ETFs and A-rated FactSet ETFs, sorted by net assets:

  • SPDR S&P 500 ETF (SPY)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (4 stars out of 1,296 funds), 5- (4 stars out of 1,053 funds), and 10-year (5 stars out of 809 funds) Morningstar Rating metrics compared to the 1,226 funds within its Morningstar Large Blend Category.
  • iShares Core S&P 500 ETF (IVV)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (4 stars out of 1,226 funds), 5- (4 stars out of 1,053 funds), and 10-year (5 stars out of 809 funds) Morningstar Rating metrics compared to the 1,226 funds within its Morningstar Large Blend Category.
  • Invesco QQQ Trust (QQQ)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (5 stars out of 1,232 funds), 5- (5 stars out of 1,088 funds), and 10-year (5 stars out of 813 funds) Morningstar Rating metrics compared to the 1,232 funds within its Morningstar Large Growth Category.
  • SPDR Gold Trust (GLD)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (5 stars out of 1,232 funds), 5- (5 stars out of 1,088 funds), and 10-year (5 stars out of 813 funds) Morningstar Rating metrics compared to the 1,232 funds within its Morningstar Large Growth Category.
  • iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (5 stars out of 184 funds), 5- (5 stars out of 135 funds), and 10-year (4 stars out of 88 funds) Morningstar Rating metrics compared to the 184 funds within its Morningstar Corporate Bond Category.
  • Vanguard Mid-Cap Index ETF (VO)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (5 stars out of 372 funds), 5- (5 stars out of 299 funds), and 10-year (5 stars out of 218 funds) Morningstar Rating metrics compared to the 372 funds within its Morningstar Mid-Cap Blend Category.
  • iShares Edge MSCI Min Vol USA ETF (USMV)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (4 stars out of 1,226 funds), 5- (5 stars out of 1,053 funds), and 10-year (not available) Morningstar Rating metrics compared to the 1,226 funds within its Morningstar Large Blend Category.
  • iShares Gold Trust (IAU)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (5 stars out of 33 funds), 5- (not available), and 10-year (not available) Morningstar Rating metrics compared to the 55 funds within its Morningstar Commodities Focused Category.
  • Vanguard Short-Term Corporate Bond ETF (VCSH)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (5 stars out of 512 funds), 5- (5 stars out of 453 funds), and 10-year (5 stars out of 292 funds) Morningstar Rating metrics compared to the 512 funds within its Morningstar Short-Term Bond Category.
  • Vanguard Short-Term Corporate Bond ETF (VCSH)—Morningstar has awarded this fund 5 stars based on its risk-adjusted performance derived from a weighted average of the performance figures associated with its 3- (5 stars out of 512 funds), 5- (5 stars out of 453 funds), and 10-year (5 stars out of 292 funds) Morningstar Rating metrics compared to the 512 funds within its Morningstar Short-Term Bond Category.

Of course, a high analyst rating alone is not sufficient basis upon which to make an investment decision. As with any screen result, more research is needed to determine if any of these ETFs are right for your specific investing strategy. For example, several of these results are bond ETFs as well as a couple of commodity-focused ETFs. If you were looking for equity-only ETFs, you may want to exclude these types of results from the screen.

2. High-value ETFs

With stocks at record highs, it may be particularly important to seek out investments with attractive valuations. There are a variety of metrics you can use to help assess value when screening for ETFs on Fidelity.com. These include price multiples such as price/earnings, price/sales, price/cash flow, and price/book value. Generally, investors view low price multiples as being relatively more attractive.

As of August 27, 2020, here are the full results of a screen selected for ETFs with very low price/earnings (0.0–13.59), very low price/book (0.0–1.45), and very low price/cash flow (0.0–7.47) multiples, sorted by net assets:

  • iShares Russell 2000 Value ETF (IWN)
  • iShares MSCI EAFE Value ETF (EFV)
  • Schwab Fundamental International Large Company Index ETF (FNDF)
  • iShares International Select Dividend ETF (IDV)
  • Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE)
  • Hartford Multifactor Developed Markets Ex-US ETF (RODM)
  • Schwab Fundamental International Small Company Index ETF (FNDC)
  • WisdomTree Emerging Markets Equity Income Fund (DEM)
  • WisdomTree Emerging Markets SmallCap Dividend Fund (DGS)
  • Vanguard International High Dividend Yield Index Fund (VYMI)

It's worth noting that several of the results of this screen are international focused. International markets, including emerging markets, have their own unique characteristics that should be evaluated thoroughly.

3. High-dividend ETFs

It's a common misconception among some investors that ETFs do not pay dividends. ETFs do, in fact, pay out the full dividend that comes with each stock held in the fund. And with interest rates still relatively low compared with historical levels, investors seeking to add income-producing investments to their portfolio may be able to achieve that objective with ETFs (assuming the additional risk associated with holding equities, or bonds with longer duration and/or lower credit quality can be tolerated).

Of course, dividends should not be the only consideration when screening for ideas. You may also want to add some kind of risk/reward screen to filter out ETFs that have high-dividend payout ratios due to artificially depressed prices. The Sharpe ratio, for example, measures historical risk-adjusted performance, and it is calculated by dividing annualized excess returns by standard deviation, a common measure of risk. The higher the Sharpe ratio, the better the risk-adjusted performance.

As of August 27, 2020, here are the top 10 results for ETFs with the highest distribution yield (trailing 12 months of the cash flow paid by an exchange-traded fund) and high Sharpe ratio (month-end 1 year) of at least 1.1, sorted by net assets:

  • Vanguard Intermediate-Term Bond ETF (BIV)
  • Vanguard Long-Term Bond ETF (BLV)
  • iShares Core Total Bond Market ETF (IUSB)
  • iShares Core 10+ Year USD Bond ETF (ILTB)
  • iShares ESG US Aggregate Bond ETF (EAGG)
  • iShares Government/Credit Bond ETF (GBF)
  • iShares Edge Investment Grade Enhanced Bond ETF (IGEB)
  • iShares 5-10 Year USD Bond ETF (IMTB)
  • FlexShares Disciplined Duration MBS Index Fund (MBSD)
  • iShares Gold Strategy ETF (IAUF)

Like the first screen, it should be noted that the results of this screen include bond and commodity ETFs. As previously noted, these types of ETFs have their own unique characteristics and risks that should be thoroughly evaluated. 

Due diligence

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 ratio2: 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. You can filter for all of these factors using an ETF screener.

Knowing the individual components of an ETF can also give you a better sense of what you are buying or selling. You can find an ETF's components on its ETF snapshot page on Fidelity.com, under Portfolio Composition. On that page, you can find the ETF's style (value, growth, or blend) and size (large, mid, or small), as well as ratings and key statistics.

Finally, you should fully understand the risks involved in any investment strategy. Any investing opportunity should be considered within the context of a well-diversified investment strategy that conforms to your specific time horizon, objectives, and risk parameters.

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