The Best Equity ETFs

A version of this article was originally published on Nov. 12, 2019.

There's a lot to like about exchange-traded funds. They're easy to buy and sell. They're generally low-cost. Depending on their investment set, they're usually tax-efficient. And they're pretty transparent: What you see is what you get. As such, ETFs can make terrific portfolio building blocks, because they allow you to get exposure to the parts of the market that you want--and not get unwitting exposure to the parts you don't want.

A good place to start your screening process is with the Morningstar Analyst Rating. Funds that earn our top rating--Gold--are those that we think are most likely to outperform over a full market cycle.

Today, we're taking a look at the top-rated stock-focused ETFs in three main asset-allocation buckets: U.S. large companies, U.S. mid-cap and small companies, and diversified international stocks.

U.S. Large-Cap ETFs
The funds in this group provide exposure to the stocks of large companies, making them fine anchors for an equity portfolio. But there are strategic differences among them.

Some in the group--including iShares Core S&P 500 ETF (IVV) and Vanguard S&P 500 ETF (VOO)--track the S&P 500. As a result, they provide access to large-cap stocks representing about 80% of the U.S. stock market.

Others on the list--such as iShares Core S&P Total U.S. Stock Market ETF (ITOT), Schwab U.S. Broad Market ETF (SCHB), and Vanguard Total Stock Market ETF (VTI)--follow broader market indexes that include more stocks, some of which are smaller-cap names. While these funds also land in the large-blend Morningstar Category, they expose investors to a wider pool of stocks and market capitalizations.

Still others on the list provide exposure to a subset of stocks. Vanguard High Dividend Yield ETF (VYM), for instance, exclusively focuses on dividend-paying stocks; its market-cap-weighted approach gives it a large-company bias. Moreover, some names on the list focus on growth stocks, while others explore value territory. 

You can find more highly rated ideas on our Morningstar Medalist ETFs list.

U.S. Mid- and Small-Cap ETFs
Mid- and small-cap funds certainly aren't portfolio essentials, especially if you already own one of the broader market index ETFs from the large-blend category--if you do, you already have some mid- and small-cap exposure.

However, if you have a large-stock-focused portfolio or if you'd like to boost your weighting in smaller names, you'll find what you need among our Gold-rated ETFs in the mid- and small-cap categories.

Some funds focus exclusively on mid-cap names, while others target smaller companies; in addition, some skew toward growth stocks, while others favor value names. Vanguard Extended Market ETF (VXF) covers all of the above.

You can find all of our highly rated ideas on our Medalist ETFs list.

International-Stock ETFs
Like mid- and small-cap funds, international-stock funds certainly aren't must-owns. After all, from a risk-reduction standpoint, international stocks aren't great diversifiers for a portfolio heavy in U.S. stocks. But remember that investment opportunities exist around the globe; many think it's a mistake to limit your investments to U.S. shores.

The Gold-rated funds here target stocks of varying sizes and styles across international markets. If none of these funds fits the bill for you, you can cull additional ideas from our Medalist ETFs list.