Best U.S. ETFs for 2021

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The panel opted to retain all seven of our 2020 U.S.-equity ETF picks, while (finally!) adding two technology ETFs and a Vanguard all-cap total market fund (VUN), for a total of 10. That makes for a crowded category but, after all, the U.S. is the biggest single geographic market in the world and investors have certainly been rewarded for being there in recent years—especially in 2020. 

Returning picks are XUU, iShares’ U.S. Total Market ETF; and three low-cost plays on the S&P 500 index: VFV and VSP from Vanguard, and BMO’s ZSP. New panellist Mark Seed especially likes XUU. “With XUU, I get the U.S. total market without any currency conversion headaches.… I also like the mix of IT and healthcare sectors—something we don’t have much of historically in our Canadian market for that sector exposure. Bottom line: It’s nice to have the U.S. total market, packaged in a fund of funds with thousands of U.S. stocks for a low fee.”

However, despite the burgeoning number of U.S. equity All-Stars, the PWL team of Felix and Passmore were decidedly less enthusiastic about the U.S. equity category this year, making the case for only the total-market ETF VUN, a call most of the panel endorsed.

Ben Felix observes that most of the funds on our list are S&P 500 index, low-volatility, or NASDAQ 100. “XUU and VUN are the only total-market ETFs.” However, Felix says XUU had some significant tracking errors in 2020, likely due to the underlying three-fund structure as opposed to holding a single total market fund like VUN. “They are moving XUU toward a single-fund underlying structure, but it is not clear how long that will take given the tax implications of selling the existing holdings.”

Felix wouldn’t recommend holding only the S&P 500 for U.S. equity exposure due to the large-cap bias, but he says “this is true any time, not just now based on valuations. Same goes for QQQ” and similar ETFs. 

Nor is PWL a fan of low-volatility funds for reasons articulated in our 2020 edition.  That said, most of the remaining panelists voted to bring back for a second year the three U.S. low-volatility equity ETFs introduced last year: ZLU, XMU and FCUL.

Breaking new ground this year is the addition of a fund category that no doubt is already owned by many investors, especially young people comfortable with high tech: Invesco’s QQQ and Horizons’ HXQ.U. Both are U.S.-dollar ETFs that track the technology-intensive Nasdaq 100 exchange. HXQ was Mark Yamada’s Desert-Island Pick last year, a pick he has retained for this edition. 

The team of Seed and Rebetez also made the case for the classic Invesco QQQ. While it owns the 102 securities in the Nasdaq 100, the market-weighted QQQ has almost 50% in the top-10 ubiquitous tech stocks, starting with Apple, and moving down to Microsoft, Amazon, Tesla, Alphabet, Facebook, NVIDIA, PayPal and Comcast. These all thrived during the pandemic but have tended to languish somewhat as the vaccine-fuelled recovery theme takes hold. 

Several other panellists went with specialty U.S. equity ETFs for their individual Desert-Island Picks. <<NOTE: LINK TO THIS SECTION>> Yves Rebetez again selected NXTG as a 5G (fifth-generation wireless) Nasdaq play. The PWL team of Ben Felix and Cameron Passmore tweaked their Desert-Island Picks from 2020: Ben Felix chose a new fund—Avantis International Small Cap Value (AVDV: NYSE Arca)—while Cameron Passmore kept his pick from last year: Avantis U.S. Small Cap Value ETF (AVUV: NYSE Arca.) Dale Roberts chose the world’s first bitcoin fund from Purpose, BTCC, as his 2021 Desert-Island Pick. Mark Seed and Robb Engen chose equity-heavy asset allocation ETFs with global exposure. {
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ETF Name Ticker Management Fee MER # of Holdings Description
iShares Core S&P U.S. Total Market Index ETF XUU 0.07 0.07 3,592 Holds total U.S. stock market (including small- and mid-caps) via 4 iShares Core Funds
Vanguard S&P 500 Index ETF VFV 0.08 0.09 509 Provides unhedged exposure to the S&P 500 at a very low cost
Vanguard S&P 500 Index ETF (CAD-hedged) VSP 0.08 0.09 509 Provides currency-hedged exposure to the S&P 500 at no extra cost
BMO S&P500 Index ETF (CAD) ZSP 0.08 0.09 507 Alternative to VFV; tied on fee; fund size is largest among 4 U.S. core ETFs
BMO Low Volatility Equity ETF ZLU 0.30 0.33 101 Holds at least 100 U.S. large-cap stocks with lower volatility than the market
iShares Edge MSCI Min Vol USA Index XMU 0.30 0.33 185 Holds U.S. equities with lower volatility than the MSCI USA index
Fidelity US Low Volatility Index ETF FCUL 0.35 0.39 102 Invests in large- and mid-cap U.S. equities with lower volatility than the broad U.S. market.
NEW! Vanguard US Total Market Index ETF VUN/TSX 0.15 0.16 3,640 Market-weighted all-cap U.S. equity fund
NEW! Invesco QQQ QQQ 0.20 0.20 102 Longtime popular ETF based on the Nasdaq 100, exposed to all major U.S. big tech firms
NEW! Horizons Nasdaq 100 Index ETF HXQ.U 0.25 0.28 100 Technology a key driver next 20 years; TRI structure minimizes tax

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