3 Unrated ETFs We’ve Got Our Eye On

A wide range of new ETFs have launched over the past few years, but very few look attractive as long-term investments. However, there are some with sound processes and low fees that have caught our eye.

3 Unrated ETFs We’ve Got Our Eye On

1. Dimensional US High Profitability ETF DUHP
2. Schwab Municipal Bond ETF SCMB
3. Avantis All Equity Markets ETF AVGE

The first ETF I have for today is Dimensional US High Profitability ETF. It trades under the ticker DUHP and costs just 22 basis points per year.

This ETF was launched about one year ago, and it mimics a mutual fund that Dimensional has offered for years. The underlying portfolio holds a diverse collection of highly profitable U.S. large-cap stocks, many of which are household names. Companies like Apple AAPL, Microsoft MSFT, The Home Depot HD, and Pepsi PEP are among its largest holdings.

Each stock’s weight is tethered to its market capitalization, but Dimensional’s portfolio managers will make some slight adjustments to steer the ETF toward names that are relatively smaller, cheaper, and more profitable than others in the portfolio.

These companies are large and established businesses that tend to grow steadily over time. On occasion, they can provide some downside protection. For example, shortly after the ETF was launched in February 2022, it outperformed the Morningstar US Market Index by about 7.8 percentage points over the last 10 months of 2022—a difficult year that saw the Morningstar US Market decline by about 12%.

Schwab Municipal Bond ETF, SCMB, is the second ETF on my list. It tries to track the broader municipal-bond market, and it sticks to investment-grade bonds across a wide range of maturities. The income from these bonds is exempt from federal income taxes, making this ETF a great option to consider for the taxable accounts of investors in the highest tax brackets.

Municipal-bond indexes are typically tougher to track than other segments of the fixed-income universe. It’s worth monitoring this fund over the next few years to ensure it’s tightly tracking the market, and Schwab has a solid team in place that should be up to the task. The 0.03% expense ratio that Schwab charges for this ETF is the lowest among comparable ETFs from iShares and Vanguard.

The last ETF I have for today is Avantis All Equity Markets ETF, ticker AVGE. This recently launched ETF holds a comprehensive portfolio of global stocks, making it a great option to access the entire global stock market through a single ETF.

Avantis built this ETF specifically for U.S. investors, and it differs from the global stock market in a few notable ways. It intentionally favors U.S. stocks with about 10% to 15% more of its assets parked in the U.S. market than the cap-weighted global market portfolio. That helps limit the amount of foreign-exchange risk in the portfolio that accompanies foreign stocks.

Avantis’ portfolio managers take some measures to improve long-term performance. They follow a set of rules that modestly push the ETF toward more profitable companies trading at attractive valuations. Avantis charges just 23 basis points per year for this ETF, making it one of the cheaper funds in the global large-stock blend Morningstar Category.

Watch “3 Great International-Stock ETFs” for more from Daniel Sotiroff.