Five ETFs to Watch in 2021

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While compiling a list of50 company stocks worth watching in the year ahead, the analysts atBloomberg Intelligence identified five exchange-traded funds, or ETFs, that they consider similarly deserving of attention. The analysts considered the funds’ makeup, growth, management, fees, and other factors such as economic conditions—and, of course, Covid-19—to arrive at this list.

Goldman Sachs Active Beta U.S. Large Cap Equity ETF (GSLC US Equity)

Goldman Sachs checks all the boxes with GSLC, its ActiveBeta U.S. Large Cap Equity exchange-traded fund. GSLC is low-cost, sophisticated, and overseen by a major Wall Street brand. GSLC is a “smart beta” ETF with the look and feel of an actively managed investment vehicle, but it’s packaged as a passively run product. The fund was set up to produce a low tracking error, meaning its composition and returns should mimic the S&P 500’s yet give it room to outperform its U.S. large-cap benchmark. That’s because GSLC screens out weaker-performing stocks, enhancing its viability as a core portfolio holding. GSLC packs a lot of punch at just a 0.09% expense fee, targeting undervalued companies with high-quality earnings. Other financial houses have been quick to follow the template for this $10 billion fund, includingJPMorgan Chase & Co. and newcomer Dimensional Fund Advisors, which also seek to provide ETFs with active characteristics at little additional cost. —Athanasios Psarofagis

Xtrackers S&P 500 ESG ETF (SNPE Equity)

Environmental, social, and governance (ESG) strategies are subjective, as some investors may care more about a company’s fossil fuel emissions while others want stocks of businesses that are diverse and support equal pay. The Xtrackers S&P 500 ESG exchange-traded fund (SNPE) flips the industry’s most frequently employed script on its head, offering a “sleep well at night” approach for retail investors fearful of deviating from the broader stock market. Instead of buying the greenest or most socially responsible companies in a given sector, SNPE uses a blended approach that cuts down on potential volatility from highly concentrated holdings relative to other ESG-oriented ETFs. It avoids S&P 500 companies it sees as the worst actors from each sector or those involved in controversial industries, such as weapons or tobacco. This fund’s potential to outperform peers could get a lift if governments and regulators come down heavier on companies that ignore core ESG tenets. A low fee of just 0.10% also makes SNPE one to watch in 2021. —James Seyffart

Vanguard Total Stock Market (VTI US Equity)

Boring is so, so beautiful with the Vanguard Total Stock Market ETF (VTI), which tracks all U.S. equities for a mere 0.03% expense fee. The ultimate “set it and forget it” exchange-traded fund has the potential to overtake the SPDR S&P 500 ETF Trust (SPY) as the biggest on the planet. And since it owns small pieces of more than 3,500 securities, holders never need to wonder whether this ETF includes a stock or not—an issue raised last year after Tesla’s late entrance into the S&P 500. VTI, after all, has ownedTesla Inc. shares for a decade, allowing it to participate in the stock’s 10,500% return. —Eric Balchunas

ARK Innovation ETF (ARKK US Equity)

The actively managed fund business isn’t dead; it just needed a good kick in the pants, which is what Cathie Wood has given it as CEO and chief investment officer of the ARK Innovation ETF. The transparent, highly concentrated portfolio of world-changing companies from a variety of sectors has defied all laws of exchange-traded fund flows, growing to $13 billion thanks to a return of 500% since inception on big bets such as Tesla, Zillow, and Swiss gene therapy company Crispr Therapeutics. But the same things that make ARKK successful could mean tough sledding if there’s a market downturn or preferences shift away from more volatile stocks in favor of ones that trade at lower prices relative to dividend, sales, or earnings potential. —Eric Balchunas

Invesco Nasdaq Next Gen 100 ETF (QQQJ US Equity)

Invesco Ltd. launched the Nasdaq Next Generation 100 ETF (QQQJ) in October to track the nonfinancial securities ranked 101 to 200 on the Nasdaq exchange. This ETF, which has impressively gathered more than $500 million in its brief existence, could be thought of as an on-deck circle for companies with reasonable chances of making it into the big leagues of the Nasdaq-100. The fund’s notable crossover with popular thematic investing categories can be encapsulated in its top three holdings: Trade Desk (advertising software), Roku (on-demand entertainment streaming), and CrowdStrike (cybersecurity). —Morgan Barna

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