Exchange traded funds have become very popular over the past few
years. The fast growing business of ETFs have the made the space
all the more competitive among issuers fighting in the segment.
While the battle for AUM has been especially intense, the war for
trades among brokers has been a big fight as well.
That is because these ETF trades represent a new and potentially
lucrative market for many online brokerage houses, and one that
could be a catalyst for growth in the coming months and years among
the companies in this space.
While having robust platforms and low fees are one way to
attract investors, many others have sought to offer up
commission-free ETF trading on select funds as well. This method
looks to generate interest from long-term investors and those in
the increasingly important IRA market by giving investors an easy
and cheap way to dollar-cost average into their favorite ETF
segments (See the
Complete Guide to Preferred Stock ETF Investing
Notable programs in this field include ones from major brokers
such TD Ameritrade, Charles Schwab, Vanguard, Interactive Brokers,
and Fidelity. While each have their own merits, arguably TD
Ameritrade offers one of the largest and most complete lineups of
The company has over 100 products that trade commission-free,
although it should be noted that if you trade within the 30-day
holding period you will incur a fee. Still, their lineup includes a
wide array of funds from issuers such as iShares, PowerShares,
State Street, Vanguard, WisdomTree, iPath, and Van Eck.
The 101 ETFs are divided into 32 bond funds, 31 domestic equity
ETFs, 3 sector funds, 31 international funds and four commodity
products, suggesting that a pretty well diversified portfolio can
be made with solely commission-free funds.
While this is an impressive lineup, it could be overwhelming to
some investors. For this reason, we have highlighted below five of
our favorite ETFs from this list of 100+ funds that could be great
picks for long-term Ameritrade investors seeking to dollar cost
average in-- commission-free-- to some quality ETFs:
Vanguard MSCI Emerging Markets ETF (
As domestic markets and European economies continue to sputter,
growth in equities becomes harder to come by. In this light, a look
at the quickly growing emerging markets could be ideal for some
investors who have a higher risk tolerance at this time. These
nations not only have greater growth potential but also lower
correlation with their developed market counterparts (
Three Overlooked Emerging Market ETFs
Investors who are willing to take higher risks in the hope of
achieving greater growth rates can invest in the low cost Vanguard
MSCI Emerging Markets ETF.
This ETF tracks the MSCI Emerging Markets Index in order to
provide exposure to a basket of stocks across various developing
nations. The product has proven to be extremely popular with
The proof is in the $67.7 billion under management in the fund,
while trading volume is close to 18,569,500. Also, the cost appears
to be minimal at 20 basis points, especially when compared to other
emerging market ETFs.
In terms of a portfolio, VWO provides access to 903 securities
in its basket and does not allocate more than 3.8% to any one
stock. This suggests that the product is well diversified from an
individual security perspective and is unlikely to face company
specific risk (read
Three Emerging Market ETFs to Limit BRIC
With regard to country exposure, China takes the top spot at
18.2% of assets, followed by 15.4% in Korea, 14% in Brazil, and a
10.6% allocation to Taiwan.
Vanguard Dividend Appreciation ETF (
On account of risks in the market and extreme stock volatility
over the past few years, many investors have sought greater
stability in their portfolios along with high levels of current
income. Unfortunately, bond yields have been quite low pushing many
into high dividend paying stocks instead. (
Ten Biggest U.S. Equity Market ETFs
Beyond individual securities, investments in equity ETFs
comprised of stocks that pay high dividend yields emerged as a
source of decent investor income for investors at this time. This
has proven to be a pretty good strategy, as intermediate term bonds
are still yielding below broad stock markets and equities have
risen higher this far in 2012.
For a dividend-focused approach for the long-term investor in
the ETF space, a closer look at VIG could be warranted. The fund
tracks the Dividend Achievers Select Index which looks to focus on
U.S. common stocks that have a history of increased dividend
payments for at least ten consecutive years.
This gives the fund a solid dividend yield of roughly 2.30% a
year, a good level considering the focus of the fund. Investors
should also note that over $13.4 billion is under management in the
fund and that both expenses are reasonable (0.13%) and volume is
high (671,100 shares per day).
The product holds a basket of 134 dividend paying stocks. The
large cap constituents of the top 10 holdings have a share of 38.0%
in net asset. Among these, The Coca-Cola Company (
), International Business Machines (
) and Pepsico Inc.(
) take the top three spots. In terms of sectors, this dividend ETF
is tilted towards Consumer Staples (23.4%), Industrials (22.4%),
and Consumer Discretionary (15.3%).
Vanguard Small-Cap ETF (
While constructing a portfolio, investors should consider the
small-cap segment as an equity component. In recent years, the
small-cap segment has seen a ramp up in demand attributable to its
promising long-term growth potential.
This slice of the market has the capability to improve the risk
adjusted returns of the portfolio and reward investors with steady
gains in the long term. The risk attribute of the asset class holds
out a promise of unparalleled returns in comparison to its
However, one trait that goes against it is the volatility.
Small-cap stocks are more volatile in nature than the blue chip
counterparts and thus can be more negatively impacted when markets
Investors seeking to play this corner of the market can invest
in Vanguard Small-Cap ETF. This ETF provides exposure to a
diversified group of 1,735 small-cap stocks at a minimal cost of 16
basis points. In terms of liquidity, the fund occupies the third
position in the small-cap ETF space.
VB is well diversified both in individual holdings, as well as
sector holdings. Just 2.8% of its asset base of $26.2 billion is
invested in the top 10 holdings. Foot Locker, Inc. (
) and Taubman Centers Inc. (
) occupy top spots in the large basket of stocks.
In terms of sector exposure, the fund allocates 21.6% of asset
base to financials, while industrials and information technology
have a share of 17.1% and 16.3%, respectively. Over a period of one
year, the fund delivered a return of 1.03%.
Russell 2000 Value Index Fund (
The Russell 2000 Value Index Fund is the oldest ETF which
provides exposure to the small capitalization value sector of the
U.S. equity market. The ETF seeks to provide investment results
that generally correspond to the price and yield performance of the
Russell 2000 Value Index before fees and expenses.
The product appears to be liquid, as approximately 1.3 million
shares change hands on a daily basis. The fund invests its $3,723.7
million of net assets in 1,355 stocks. IWN invests just 4.6% of its
asset in the top ten holdings, which suggest that it doesn't face
concentration risk. National Retail Properties, Inc (
) and BioMed Realty Trust Inc. (
) occupy the top two positions in the fund.
Among the sectors, financials, producer discretionary and
consumer discretionary hold the lion's share, makes up 64.8% of the
total investment. (
Play a Consumer Recovery with These Discretionary
For the investment made in the ETF, the investor pays an expense
ratio of 40 basis points. Due to heavy weighting towards
financials, the fund delivered a negative return of 1.2% over a
period of one year.
Dow Jones REIT ETF (
This ETF tracks the Wilshire REIT Index. It follows companies
that operate real estate properties across the country. (
Real Estate ETFs: Unexpected Safe Haven
) The product utilizes a float-adjusted market capitalization
technique and charges investors 25 basis points a year in fees for
In terms of yield, the product pays out about 2.9% in 30 Day SEC
yield terms while trading volumes are quite robust. With average
volume over 230,000 shares, the Dow Jones REIT ETF has tight bid
ask spreads as well, giving it low overall total costs.
The product holds 81 securities in total, including an 11.8%
weighting to Simon Property Group (
). Beyond that, no other company makes up more than 5.2% of the
product, suggesting decent diversification.
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ISHARS-RS 2K VL (IWN): ETF Research Reports
COCA COLA CO (KO): Free Stock Analysis Report
SPDR-DJ W REIT (RWR): ETF Research Reports
SIMON PROPERTY (SPG): Free Stock Analysis
VIPERS-SM CAP (VB): ETF Research Reports
VANGD-DIV APPRC (VIG): ETF Research Reports
VIPERS-M EM MKT (VWO): ETF Research Reports
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