Index funds have been witnessing significant net inflows of capital in recent months. For instance, “the end of 2020 witnessed a $44.5 billion weekly inflow into stock funds, a historic high.” Given the increase in interest, today’s article introduces seven index funds to buy for March.
According to recent research published by the National Bureau of Economic Research (NBER) in Cambridge, Massachusetts, “index funds invest in portfolios that attempt to track the performance of specified benchmark indexes, such as the S&P 500 or the Russell 3000. The term “index fund” encompasses both mutual funds and exchange traded funds (ETFs).”
Metrics indicate there are currently over 2,200 ETFs in the U.S. Most InvestorPlace.com readers are well-versed in ETFs, which track a stock index, a commodity, bonds or a basket of assets. There are differences between index funds and ETFs. But many investors use them interchangeably. For example, ETFs trade on exchanges just like shares. On the other hand, index funds are usually bought directly with the fund manager.
There are also some differences in expenses and year-end tax consequences. A financial planner would be able to point most investors in the right direction appropriate for their investment objectives.
With that information in mind, here are seven index funds to buy for March:
52-week range: $17.49 – $33.96
Dividend yield: 1.8%
Expense ratio: 0.12%, or $12 on a $10,000 investment annually
The Financial Select Sector SPDR Fund gives access to a range of financial services firms, such as banks, asset managers, insurance firms and brokers, as well as real estate investment trusts (REITs).
XLF, which has 65 holdings, tracks the returns of the Financial Select Sector Index. Since its inception in December 1998, the fund has grown assets under management to $35.7 billion. Several of the leading names in the fund are Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C). Around 54% of XLF is concentrated on the top-10 stocks. Put another way, as long as these names do well, XLF also performs strongly.
Year-to-date (YTD), the fund is up about 13%. Furthermore, its dividend yield is 1.8%. Trailing price-to earnings (P/E) and price-to-book (P/B) ratios are 16.21 and 1.36, respectively. Vaccination rollout is on the rise. If our economy can get back to pre-Covid-19 levels in the next several quarters, financial institutions could continue to create shareholder value.
52-week range: $24.67 – $35.18
Dividend yield: N/A
Expense ratio: 0.15%
Our next fund is the Invesco NASDAQ Next Gen 100 ETF, which invests in the 101st to the 200th largest non-financial firms listed on the NASDAQ exchange. Many of these firms could potentially move up to the NASDAQ 100 index in the coming months or years.
As a reminder, the NASDAQ 100 is made up of the 100 largest non-financial companies on the NASDAQ. The market simply refers to NASDAQ 100 as the triple Qs. Members of the NASDAQ 100 have been the catalyst behind much of the rally in the past decade. However, the market might be ready to rotate into those high-growth businesses with smaller market capitalizations.
QQQJ tracks the NASDAQ Next Generation 100 index. Assets under management are about $1.1 billion. Shares of information technology (IT) companies have the highest weighting (41.8%), followed by health care (18.6%), communication services (16.1%), consumer discretionary (14.4%) and others. The top-10 businesses comprise about 19% of the funds.
The first five names in the fund are Roku (NASDAQ:ROKU), Crowdstrike (NASDAQ:CRWD), Viacom (NASDAQ:VIAC), Trade Desk (NASDAQ:TTD) and Etsy (NASDAQ:ETSY). Year to date, QQQJ has returned about 4%. I believe the fund that focuses on the next-tier of non-financial NASDAQ shares deserves to be on investors’ shopping lists for the rest of the year.
Source: Sundry Photography / Shutterstock.com
52-week range: $71.86 – $139.93
Dividend yield: 0.7%
Expense ratio: 0.2%
Our next fund, the iShares Russell Top 200 Growth ETF, gives access to large-cap firms expected to grow more than the market or their peers. Thus, IWY’s aim is to combine earnings potential with the relative dependability of large-cap companies.
Analysts regard large-cap companies as more “robust” or “secure.” In other words, although their share prices might decline occasionally, they do not get held down for too long.
IWY, which tracks the Russell Top 200 Growth Index, currently has 106 stocks. It started trading in September 2009, and net assets stand at $3.4 billion. About 47% of the firms are in information technology, followed by consumer discretionary (17.45%), communication (12.76%) and health care (11.8%).
Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Tesla (NASDAQ:TSLA) top the roster. Close to 54% of the assets are in the leading 10 stocks.
Since the start of the year, IWY has decreased by about 3%. However, in the past 12 months it is up by 37%. In other words, the Covid-19 recovery seen in 2020 was mostly about growth investing. Trailing P/E and P/B ratios of 37.31 and 12.15 suggest a high valuation at this point.
Over the past several months, there has been a rotation in value shares as well. A potential decline toward $120 or even below would improve the margin of safety for investors in IWY.
52-week range: $17.49 – $35.44
Dividend yield: 5.01%
Expense ratio: 3.4%
The ProShares Global Listed Private Equity ETF gives exposure to global private equity companies, which invest in private enterprises. Currently, the fund has 29 holdings. PEX tracks the LPX Direct Listed Private Equity Index. Since inception in February 2013, assets under management have reached about $19 million. Put another way, it is a small, niche fund.
Approximately 60% of the holdings are in the top-10 names. Business development company Ares Capital (NASDAQ:ARCC), U.K.-based private equity specialist 3i (OTCMKTS:TGOPY) and Canadian Onex (OTCMKTS:ONEXF) head the names in the fund.
The ETF is up about 10% since the start of the year. Potential investors who are looking for a fund may want to study the fund more closely. A decline toward $32.50 would improve the risk/return profile of the fund. However, the private equity space is typically risky. Potential bankruptcies or defaults are part of the “reality.” Therefore, caution is necessary when investing in PEX or its peers.
Source: Isabelle OHara / Shutterstock.com
52-week range: $18.32 – $34.74
Dividend yield: 2.01%
Expense ratio: 0.11%
The Schwab Emerging Markets Equity ETF invests in large-cap and mid-cap emerging market firms. Since its inception in January 2010, funds have grown to $9.1 billion. SCHE, which tracks the returns of the FTSE Emerging Index, has 1,510 holdings. The top-10 names comprise around 29% of assets.
Chip leader Taiwan Semiconductor Manufacturing (NYSE:TSM), social-media heavyweight Tencent Holdings (OTCMKTS:TCEHY), e-commerce darling Alibaba (NYSE:BABA), China-based food delivery platform Meituan (OTCMKTS:MPNGY) and South-African internet group Naspers (OTCMKTS:NPSNY) top the roster.
Financials have the highest sectoral weighting with 20.1%. Next in line are consumer discretionary (18.5%), IT (15.4%), communication services (11.8%) and materials (7.7%).
Since the start of the year, SCHE is up 4.66% and hit a record high in mid-February. Trailing P/E and P/B ratios are 18.73 and 2.09. In the case of a potential profit-taking, long-term investors would find better value around $30 or below. An emerging-market fund such as SCHE could certainly help in portfolio diversification.
Source: Casimiro PT / Shutterstock.com
52-week range: $76.49 – $89.59
Dividend yield: 2.22%
Expense ratio: 0.03%
Equity indices hit their highest levels in 2021, pushing valuation to frothy levels. Meanwhile, the past few days we’ve witnessed increased levels of volatility. Therefore, from equities, we now move to bonds.
The Vanguard Total Bond Market Index Fund ETF invests in investment-grade U.S. dollar-denominated bonds. It is heavily tilted toward U.S. Treasuries (63.2%). The Street typically regards U.S. Treasuries as the safest haven besides gold. Since its inception in April 2007, assets have grown to $305 billion.
The fund tracks the returns of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. This index measures the performance of a large number of fixed-income securities. They include government, corporate and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities. These assets all have maturities of more than one year.
U.S. Treasury and agencies are the largest issuers (42.4%), followed by government mortgage-backed security issuers (20.8%). Next on the list are industrial (18%) and financials (8.9%), foreign government bonds (5%) and utilities (2.4%).
So far in the year, the fund is down about 3.5%. In diversified portfolios, bonds might provide downside protection as well as an income stream. Declining interest rates have so far been positive for bond returns. However, going forward, the Street realizes the Fed will walk a fine line.
Another important concept to remember is duration. It measures the sensitivity of bond prices to interest rate movements. For instance, if a bond’s duration is three years, its price would fall about 3% when interest rates increase by one percentage point. But the bond’s price would increase by 3% when interest rates decline one percentage point.
Thus, a high duration means a small change in interest rates could have a large effect on a bond’s value. Holding investments with a maturity of more than 20 years could become a risky proposition. BND has an average duration of 6.6 years. Thus, it is in the intermediate maturity category. So it is less sensitive to interest-rate fluctuations than funds with longer maturities. The closer a bond is to maturity, the less interest-rate risk it carries.
Therefore, a fund like BND could appeal to investors who need to take some risk off the table in times of heightened volatility. If you need a certain amount of money (such as for an upcoming purchase or paying for a family commitment) in the coming years, then you could look into a fund with a fixed income.
52-week range: $99.36 – $232.26
Dividend yield: 0.61%
Expense ratio: 0.15%
Our last fund for today, the Vanguard S&P Small-Cap 600 Growth ETF, gives access to growth stocks in the S&P SmallCap 600 index. Since its inception in 2010, net assets have reached $454.6 million. The fund currently has 336 holdings.
In terms of sectoral weighting, IT has the highest allocation with 19.4%, followed by health care (18.1%) industrials (16.6%), consumer discretionary (16.3%) and financials (8.7%). At present, GameStop (NYSE:GME), Cleveland-Cliffs (NYSE:CLF) and NeoGenomics (NASDAQ:NEO) lead VIOG. The top-10 names make up about 11.7% of the fund.
Year to date, VIOG has returned close to 8%. The trailing P/E and P/B ratios are 23.4 and 3.4, respectively. Additionally, the current price, which is under $215, will give long-term investors a solid margin of safety. Historically, small caps show high growth potential. As a result, they tend to outperform large caps in the long run and thus help with portfolio diversification.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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