Ryan Jackson: “Fortune favors the bold” is a good saying to remember when you need to drum up some courage. It’s probably a good one to forget when it comes to investing.
Of course, betting the farm on one or two stocks has more upside than building a broadly diversified portfolio. But the wipeout risk is much higher, and finding the next Nvidia NVDA is easier said than done. Most investors are better off casting a wide net.
Diversifying is especially important now because the stock market is uncommonly top-heavy. The S&P 500 packed 34% of its portfolio in its top 10 holdings at the end of July—a higher share than 99% of all months since 2002. So, today, let’s cover three ETFs that put diversification front and center.
3 Great ETFs That Offer Broad Diversification
- Schwab Fundamental U.S. Large Company ETF FNDX
- JPMorgan Core Plus Bond ETF JCPB
- Vanguard Total Stock Market ETF VTI
First up is Schwab Fundamental U.S. Large Company ETF, which trades under the ticker FNDX and sports a Silver Morningstar Medalist Rating.
This index strategy has a contrarian bent, weighting stocks by their fundamental size instead of market cap. At each rebalance, the fund effectively doubles down on declining stocks and trims exposure to those on the rise. Going against the grain doesn’t always work, but it helps the fund thrive when overhyped companies sink and undervalued ones rise to the top.
The fund sweeps in the full large- and mid-cap US stock market, and fundamental weighting promotes solid balance. Firms like Apple AAPL, Microsoft MSFT, and Amazon AMZN still anchor this portfolio, just in smaller proportions than traditional cap-weighted benchmarks. The top 10 holdings normally represent about 20% of the portfolio.
Pairing this broad scope and fundamental focus has yielded strong results. The fund gained 11.6% per year over the past decade, better than 95% of its peers in the large-value category. Though that trailed the Russell 1000′s 12.9% gain, the fund should measure up better if the market rally broadens out.
It’s over to bond land for fund number two: JPMorgan Core Plus Bond ETF, ticker JCPB. This actively managed strategy also earns a Morningstar Medalist Rating of Silver.
Launched in 2019, this ETF mimics the well-vetted JPMorgan Core Plus Bond ONIAX mutual fund. Both vehicles benefit from a sound strategy that’s defined by collaboration. Several seasoned managers focus on distinct sleeves of the portfolio. J.P. Morgan’s quarterly investment meetings set macro themes, and weekly sector meetings focus on relative value and tactical positioning. The sector-focused comanagers handle bottom-up security selection.
This robust approach has created a sprawling portfolio that totaled more than 2,300 bonds at the end of July. Bespoke securitized debt, Treasuries, and high-yield corporate bonds help land the fund in the intermediate core plus Morningstar Category.
The ETF has fared well since hitting the market in 2019, and its mutual fund sibling compiled a strong track record long before then. Talented management and a low fee should help that trend continue.
Today’s final ETF is the market’s fourth-largest, Gold-rated Vanguard Total Stock Market ETF, VTI.
This broad-based index fund does not hunt for needles in the haystack—it buys the whole barn. VTI sweeps in the complete investable US stock market, weights the firms based on market cap, and charges investors a paltry 0.03% fee for the trouble. It sits in the large blend Morningstar Category but does include small-cap stocks, unlike many of its peers.
What’s so great about this plain-Jane approach? The short answer is that it works. VTI gained 8.9% annualized from its May 2001 inception through July 2024, beating the S&P 500 and outpacing nearly 90% of other large-blend peers. A $1,000 investment in this fund on its first day would now be worth about $7,000, rewarding patient investors and proving that betting on breadth can bring huge rewards.
Watch 3 Good ETFs When Interest Rates Fall for more from Ryan Jackson.
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