As the ETF business has evolved and expanded, it sometimes feels like the conservative investors are being left behind. Though there's been impressive growth in fixed income ETFs, most of the new equity offerings have focused on emerging markets or high-risk leveraged strategies, neither of which appeals to more conservative investors.
Though they don't get as much press as their riskier cousins, there are plenty of ETFs out there with solid strategies and robust returns. You just have to know where to look.
Let's take a look at some of the equity and fixed income ETFs that any prudent investor could love.
Vanguard Dividend Depreciation ETF (NYSE: VIG)
Dividends are the cornerstone of any conservative investment portfolio and VIG has dividends in spades. It tracks 142 stocks including some of the most consistent dividend raisers. VIG's top-10 holdings include stalwarts like PepsiCo (NYSE: PEP), Procter & Gamble (NYSE: PG), Wal-Mart (NYSE: WMT) and Exxon Mobil (NYSE: XOM). Many of the stocks in VIG's lineup have been raising their payout ratios for decades.
The top 10 holdings make up about 40% of VIG's total assets, which hover around $3.7 billion. Best of all, VIG's expense ratio is just 0.23%, making it cheaper than almost 80% of comparable ETFs.
Vanguard Value ETF (NYSE: VTV)
VTV features holding similar to VIG, but VTV is far larger. VTV holds over 400 stocks and has almost $12 billion in assets under management. VTV is also a little bit riskier than VIG, though it's still intensely focused on large-cap, blue-chip names. Exxon Mobil and Procter & Gamble are among the top-10 holdings as are deeper value plays like AT&T (NYSE: T) and Pfizer (NYSE: PFE).
The top-10 holdings account for about 29% of VTV, but investors should be aware that financials like Bank of America (NYSE: BAC), JPMorgan (NYSE: JPM) account for almost 27% of VTV's sector weight. What it lacks in sector diversification it makes up for with a low expense ratio of 0.14%, making it cheaper than 89% of comparable ETFs.
Consumer Staples Select Sector SPDR (NYSE: XLP)
Consumer staples are a classic defensive sector, but stock picking within ANY sector when the bears are in control can be a tricky game. For example, just because Procter & Gamble is in favor doesn't mean Altria (NYSE: MO) is too. In other words, an ETF like XLP can really alleviate the burden of stock picking within an isolated sector group by outsourcing the job to an experienced and qualified fund manager
Besides, Altria and Procter & Gamble, XLP holds familiar names like Kraft Foods (NYSE:KFT) and Wal-Mart (NYSE:WMT). But be sure to note an important feature of this ETF: Two firms, Procter & Gamble and Wal-Mart, make up more than 26% of XLP's holdings. Despite this quirk, XLP is highly liquid and features a reasonable expense ratio of just 0.22%.
SPDR Dividend Aristocrats (NYSE: SDY)
SDY tracks the S&P 500 Dividend Aristocrats Index. To be considered for inclusion in the Dividend Aristocrats Index, a company must have a track record of raising its dividend for 25 consecutive years, so you know you'll be getting hands on some quality names with this ETF.
SDY tracks 42 stocks including Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ), PepsiCo and Procter & Gamble. SDY's top-10 holdings account for almost 33% of the ETF's weight while consumer staples and utilities comprise more than 52% of SDY's sector weight. The expense ratio is a bit higher than the others at 0.35%.
iShares Barclays Aggregate Bond ETF (NYSE: AGG)
What conservative portfolio would be complete without some fixed income exposure? All of AGG's holdings are rated investment-grade, so investors don't need to worry about any junk bond exposure here.
Historically, bonds outperform when investors become skittish about equities, and recent history bolstered this thesis. AGG was up more than +4% through June 2010 while the S&P 500 was down -8%.
Another advantage of bond ETFs: They usually feature low expenses and AGG is no exception with an expense ratio of just 0.2%.
