THE KIPLINGER ETF 20 BACK IN THE BLACK

Our favorite exchange-traded funds are on the upswing. Here's how to make the most of your ETF portfolio.

- NELLIE S. HUANG

The scars we suffered during 2022's bear market are on the mend. After losing 18.1% in 2022, the S&P 500 has clawed its way back to a 16.9% gain so far in 2023. Bonds are clambering up, too. The Bloomberg U.S. Aggregate Bond index, a broad bond market barometer, returned 2.1% over the first six months of 2023, after a 13.0% loss in 2022. (All returns in this story are through June 30, unless otherwise noted.) And the bear? It’s gone, at least technically speaking, because the broad stock market benchmark has gained more than 20% from its bottom in October 2022.

The funds in the Kiplinger ETF 20, the list of our favorite exchange-traded funds, are recovering, too. Most of our picks have regained enough ground since the start of the year to push their one-year returns into positive territory. All told, in this, our annual review of the ETF 20, things look a lot better than a year ago, when all but two of our funds (Schwab U.S. Dividend Equity and Invesco Optimum Yield Diversified Commodity Strategy No K-1) sported negative one-year returns.

Meanwhile, the ETF industry continues to evolve. Though total net assets in ETFs dropped in 2022 to $6.5 trillion, compared with $7.2 trillion the previous year, 12% of all U.S. households now own ETFs. And ETFs accounted for 30% of daily U.S. stock market trading activity in 2022, up from 25% in 2021. “We’ll get to a point where generations of investors don’t treat ETFs as new or unique or even particularly clever,” says Ben Johnson, of investment research firm Morningstar, who formerly directed ETF research for the firm and now works with asset managers as they build out and bolster their ETF offerings. “They’re going to be ETF natives the way our kids are tech natives.”