Every year the legendary investing author and educator Paul Merriman and his team release their recommendations of “best in class ETFs” for each market segment suggested for his model portfolios, so I figured I'd do the same.
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Introduction – Read This First
Paul Merriman publishes his list of “best in class ETFs” every year for his model portfolios. I've got quite a few posts spread somewhat haphazardly on this site for various market segments (e.g. large cap blend, Emerging Markets value, etc.) so I figured I'd follow Merriman's example and make a quick list of picks by yours truly so that you can see them all in one place at a glance instead of hunting down different articles.
In a nutshell, like Merriman, I'm usually aiming to find the most exposure “bang” for my buck. For factor funds, for example, that's going to be looking at things like factor loadings given a sufficient AUM (to avoid illiquidity and risk of fund closure). Merriman's rec's usually line up with my own, so the table below will probably look similar to his. We differ on the broad market funds; more on that in a sec.
Note that while I aim to update those articles and this list when I can (probably annually), I can't do an analysis and update these posts every time a new fund is released throughout the year. Moreover, when new funds launch, we wouldn't want to add them immediately anyway; we'd want to wait to see their factor loadings, selection methodology, characteristics like average market cap and P/E ratio, and whether or not the fund attracts assets.
I'd suggest bookmarking this page and revisiting once a year or every couple years to see if anything has changed. You can do that using Ctrl+D on Windows or Command+D on Mac. If you're seeing a version that's older than a year or so (look at the “updated” date at the top), clear your browser cache and then try again; it was probably just serving you an old, cached version of this page.
I also probably won't cover every single combination of cap sizes, styles, and geographies. Funds below are usually going to be the ones I myself invest in, but there are some assets (e.g. Commodities and municipal bonds) and market segments (e.g. small cap growth) that I don't own. Where applicable, in the table below I've linked to the relevant blog post for that particular market segment that goes into more detail on those funds.
If you want to switch from whatever fund you currently own, remember that selling in a taxable account may have tax implications if you have any capital gains. If you have losses, you may want to harvest them.
Lastly, the “best in class ETF” I've crowned may or may not be suitable for you depending on your views on providers, fees, factors, active versus passive management, and liquidity. These are also my personal opinions; reasonable minds may disagree with my picks, and that doesn't mean those differing opinions are wrong.
For example, for a broad market segment like U.S. large cap blend, some may prefer a market-like fund with very light factor tilts such as DFAU from Dimensional. In my opinion, those products typically don't look terribly different from something like plain ol' VOO for the S&P 500 Index, so I usually prefer to use a vanilla index for the broad market and then tilt very granularly and purposefully with the most concentrated factor exposure I can find.
In most cases, my approach is cheaper in terms of fees. I also usually prefer to target factors within the small cap universe. But that doesn't mean funds like DFAU are bad products. Quite the opposite – they provide a simple, single-fund solution for the investor who doesn't want to do things my way. Just like I noted for lazy portfolios, there's no objectively “best” fund for anything because that's going to be personal based on one's strategy, goals, risk tolerance, etc. – different strokes for different folks.
Note that “DM” below refers to ex-US Developed Markets and “EM” refers to Emerging Markets.
This is also not a recommendation to buy or sell anything. Do your own due diligence.
Optimized Portfolio “Best in Class” ETFs
|Global Stock Market
|Total U.S. Stock Mkt.
|ITOT, SCHB, SPTM
|U.S. Large Cap Blend
|IVV, SCHX, SPLG
|U.S. Large Cap Value
|DFLV, AVLV, VONV, IUSV, VOOV, SPYV, ILCV
|U.S. Mid Cap Blend
|U.S. Mid Cap Value
|IVOV, RFV, DFUV
|U.S. Small Cap Blend
|VIOO, ISCB, IJR
|U.S. Small Cap Value
|DFSV, VIOV, SLYV
|Total Int'l Stock Mkt.
|DM Large Cap Blend
|IEFA, SPDW, SCHF
|DM Large Cap Value
|EFV, AVIV, DFIV
|DM Small Cap Blend
|SCZ, GWX, SCHC, DFIS
|DM Small Cap Value
|IEMG, SPEM, SCHE
|EM Small Cap Blend
|EM Small Cap Value
|Total U.S. Bond Mkt.
|AGG, SPAB, SCHZ
Disclosures: I am long VOO, AVUV, VEA, AVDV, VWO, DGS, and EDV in my own portfolio.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. All examples above are hypothetical, do not reflect any specific investments, are for informational purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
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