Kiplinger’s Personal Finance — September 2017

52 KIPLINGER’S PERSONAL FINANCE^ 09/2017

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them susceptible to steeper
losses in a market slump.
The trade-off is that small
caps can deliver fine results,
especially if you buy the
cheap ones, which this ETF
emphasizes. “The payoff
of owning value stocks rises
as you go down the market-
cap spectrum,” says Ben
Johnson, Morningstar’s
chief of ETF research.
As of May 31, the fund
held 1,358 stocks with an
average market value of
$1.6 billion (tiny compared
with the $88.3 billion aver-
age in the S&P 500), accord-
ing to Morningstar. Banks
and other financial firms,
industrial companies, and
real estate businesses domi-
nate the roster. In general,
these aren’t fast-growing
companies, but you won’t
pay much to own them.
Stocks in this ETF trade
at 1.4 times book value,
compared with 2.2 for the
Russell 2000 index, which
tracks small-cap stocks. The
ETF looks inexpensive on
other measures, too, such
as price-to-sales and price-
earnings ratios.
A thin expense ratio
should help the fund beat
costlier actively managed
funds, as well as most other
ETFs in this space. The fund
also holds a larger collec-
tion of stocks than ETFs
that track the more concen-
trated S&P 600, another
popular small-cap index.
That should provide greater
exposure to the small-cap
value effect, says Gray. ■

We’re making a couple of changes in the Kiplinger

ETF 20, the list of our favorite exchange-traded

funds. Specifically, we’re adding two of the funds

mentioned in the accompanying article. Why not

all five? To add all of them, we would have to re-

move five ETFs from the existing roster, and, in

truth, we’re comfortable with almost all of them.

Still, we expect the five ETFs we’re featuring in

this article to be winners.

First up, we’re replacing iShares Core S&P Small

Cap (symbol IJR) with VANGUARD RUSSELL 2000

VALUE (VTWV). The Vanguard ETF trailed the

Russell 2000 index, which tracks small-company

stocks, by an average of 0.5 percentage point

over the past half-decade. But the Vanguard fund

burst ahead by 10 points in 2016, and we think it

stands a good chance of continuing its hot streak.

Although value stocks are always, by definition,

cheaper than growth stocks, the valuation gap

between the two is among the largest it has been

since 1942. Value stocks tend to beat growth

stocks when they are this cheap, making this ETF

more compelling than a broad small-cap fund.

After a big run-up, tech stocks could be due

for a breather. So we are replacing Vanguard

Information Technology (VGT) with ISHARES

EDGE MSCI USA MOMENTUM FACTOR (MTUM).

You’ll still get a big slug of tech in the fund. But

it holds an array of other stocks with good price

momentum. If tech keeps surging, the iShares

ETF will benefit. But the fund won’t lose as much

as a pure tech ETF if the sector fizzles out.

We Swap Two Funds

THE KIPLINGER ETF 20 UPDATE

KIPLINGER ETF 20: VITAL STATISTICS

Returns/Fees/Free Trades

Key: E=E*Trade F=Fidelity FT=Firstrade S=Schwab TD=TD Ameritrade V=Vanguard

Through June 30. —Fund not in existence for the entire period. SOURCES: Dow Jones, Morningstar, XTF.com.

Core Stock Market Funds Symbol

Share

price

Annualized total return

Yield

Expense

ratio

Commission-

1 yr. 3 yrs. 5 yrs. free trades

iShares Core S&P 500 IVV $243 18.0% 9.6% 14.6% 2.0% 0.04% F, FT, TD

iShares Core S&P Mid-Cap IJH 174 18.3 8.4 14.8 1.5 0.07 F, FT, TD

PowerShares Dynamic Large Cap Value PWV 36 19.9 8.4 14.3 1.8 0.57

Vanguard FTSE All-World ex-US Sm-Cap VSS 108 19.5 1.8 9.0 2.3 0.13 TD, V

Vanguard Russell 2000 Value VTWV 103 25.3 6.9 13.2 1.7 0.20 V

Vanguard Total International Stock VXUS 52 20.2 1.3 7.7 2.7 0.11 V

Vanguard Total Stock Market VTI 124 18.5 9.1 14.5 1.9 0.04 TD, V

Dividend Stock Funds

Schwab US Dividend Equity SCHD $45 12.1% 8.8% 13.4% 3.0% 0.07% S

Schwab US REIT SCHH 41 –2.6 7.9 8.9 3.6 0.07 S

Vanguard High Dividend Yield VYM 78 12.7 9.0 13.6 3.1 0.08 TD, V

WisdomTree Intl LargeCap Dividend DOL 47 18.1 –0.6 7.3 3.5 0.48 E

Core Bond Fund

iShares iBonds 2021 Term Corporate IBDM $25 0.7% — — 2.4% 0.10%

Opportunistic Stock Funds

Financial Select Sector SPDR XLF $25 35.2% 12.2% 17.8% 1.6% 0.14%

Guggenheim S&P 500 Eq Wt Health Care RYH 174 15.9 12.6 19.2 0.5 0.40 S

iShares Edge MSCI USA Momentum FactorMTUM 89 18.0 13.4 — 1.3 0.15

iShares Global Infrastructure IGF 44 12.0 2.8 8.8 3.2 0.47

Opportunistic Bond Funds

iShares Mortgage Real Estate Capped REM $46 23.8% 8.4% 8.2% 8.9% 0.48%

Pimco Active Bond BOND 106 1.9 3.0 3.5 3.1 0.55

PowerShares Senior Loan Portfolio BKLN 23 4.8 1.7 3.2 4.0 0.65 S

VanEck Vectors Fallen Angel High Yield ANGL 30 12.6 7.8 9.5 5.0 0.35

Indexes

S&P 500-STOCK INDEX (LARGE U.S. STOCKS) 17.9% 9.6% 14.6% 2.0%

MSCI EAFE INDEX (FOREIGN STOCKS) 20.3% 1.1% 8.7% 3.1%

BARCLAYS US AGGREGATE BOND INDEX –0.3% 2.5% 2.2% 2.6%

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