Dear Happy Investor, successful long-term investing? Exchange Traded Funds (ETFs) are often the better choice for retail investors. Lower risk yet higher returns. In this article, you'll find my research on the best ETFs at eToro for long-term investing. It is a careful selection from low to higher risk. A selection of the best eToro ETFs based on facts: achieved returns and dividends.
In addition to the facts, we also look ahead. What are the expectations? Based on my knowledge and experience, I have selected 8 of the best trackers at eToro where I expect them to continue its strong performance in the future.
Read on quickly
The 8 best Exchange Traded Funds at eToro based on risk, return and long-term potential
These are the 8 best ETFs at eToro:
The image above represents a summary of the best Exchange Traded Funds you can buy at eToro. They are ranked by risk. The VTI contains relatively less risk, due to its global spread. The iShares Semiconductor ETF contains the most risk, but with potentially the highest returns.
Note: the 8th was later added as the best ETF at eToro for investing in carbon reduction.
Please understand that this table looks like a "simple" list, but there are many years of experience and work behind it. After all, I try to select the best eToro ETFs based on the facts (historical returns), but also on potential future high returns. The QQQ, ARKK and SOXX are examples of this. These are more risky ETFs that I personally expect can give us higher than average returns over the longer term. Note that they also give higher price volatility. Buy the dip can be an excellent choice with these types of trackers 😉 .
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1. Best Theme ETF eToro: Investing in Carbon Credits (CO2)
Specifically for 2022 and the long term, investing in carbon credits may well be the investment opportunity of these decades. After much research, we came across an ETF that is only available for purchase at eToro. This is the KraneShares Global Carbon Strategy ETF (KRBN). The image above demonstrates its recent performance.
In addition to the ETF for investing in carbon credits (which are carbon certificates), it is also possible to invest in pure carbon stocks.
2. Best Global ETF eToro: Vanguard Total Stock Market (VTI)
A picture says more than 1,000 words. The facts in the table above speak for themselves: the Vanguard Total Stock Market (VTI) is the best global ETF at eToro. In doing so, the spread is wide. More than 3900 companies around the world. Of those, about 20 - 25% are in the top 10, which is on the higher side compared to the VWRL and VT (downside).
The VTI has these advantages compared to the VWRL and VT:
- Higher yield
- Higher dividend
- Cheaper ETF with an expense ratio of 0.03 - 0.06% vs. the 0.22% of the VWRL.
Many European investors choose the VWRL. Let me be clear: this is a fine global ETF! In fact, I convinced my sister to invest a small amount here every month.
Why VWRL while the VTI is the best global ETF at eToro?
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3. Best Dividend ETF eToro: Schwab US Dividend Equity (SCHD)
The Schwab US Dividend Equity was the reason for me to start investing through eToro. This is because this is one of the best dividend ETFs you can buy. This tracker has realized an average annual dividend of >15% since inception. And that doesn't include the approximately 3% dividend per year! It is likely that this equity fund will outperform the S&P 500 in the long run. This means an average annual return of ±10% and ±3% dividend per year.
The short summary is that this is definitely one of the best eToro trackers. This Exchange Traded Fund focuses on about 100 dividend companies that score highly on fundamental valuation. These are respectable companies with a proven earnings model. Think of Pepsico, Pfizer, et cetera.
Dividend stocks generally carry a lower risk. This type of company has been making profits for years, part of which is paid out as dividends. The price is usually more stable, so you have less price return. On the other hand, there is a little more security with an annual dividend.
The strength of the Schwab US Dividend Equity is that it performs well on both price return and dividend. One drawback is the higher turnover and the top 10 is 42% of the total. The latter normally indicates higher risk. And yet the annual volatility is "only" 16%. (Which means the stock price is regularly -15% from its previous peak).
At the moment, I have only bought one SCHD share at eToro. In time, I will convert this to 10% of my total assets. That amounts to 15 - 20K. This needs time though, because I need to sell capital from other ETFs & stocks at my broker. And I want to do that at the right times with higher profits 😉 .
4. Best Dividend ETF eToro: iShares Core Dividend Growth (DGRO)
The second best dividend ETF at eToro is the iShares Core Dividend Growth (DGRO).
DGRO has achieved a total return of 114% over the past 5 years. In the process, the annual dividend fluctuated around 2%
This low-cost tracker focuses on U.S. stocks with dividend growth. The expense ratio is just 0.08%. Risk allocation across sectors is good. Geographic risk distribution, like the SCHD, is not as good (U.S. only). A global Exchange Traded Fund like the VTI or VWRL would be a good complement to the SCHD and/or DGRO.
Which dividend stock fund at eToro is better: SCHD or DGRO? Answer: the DGRO offers slightly lower risk than the SCHD. The price of this lower risk is a slightly lower yield and dividend. You would want to choose this if you want to trade more short term. For long term investors (>5 - 30 years) the SCHD is a more logical choice.
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5. Best Small cap ETF eToro: iShares Russell 2000 Small Cap ETF (IWM)
Small caps are a great addition to any ETF investment portfolio. Small caps are small companies. They have a higher chance of failure (risk), but also a higher chance of rapid growth (return). To invest in small companies, you need a lot of knowledge and expertise. In exchange for the higher risk, you can get a higher return.
Don't have this knowledge and want to take advantage of this opportunity? The iShares Russell 2000 offers the solution.
This best eToro ETF allows you to quickly and easily spread your money across 2,000 small publicly traded companies within the United States. The advantage of this is large spread in terms of companies and sectors. Also, the return is slightly higher (theoretically). The average annual return since inception is 9.19% with about 0.75% dividend.
A disadvantage is the lack of geographical spread. The fund contains about 2000 small companies listed on U.S. stock exchanges. Some of them will surely generate international sales, but the majority will not. Also, the IWM contains greater risk in the short term, as small companies have been hit harder by the covid-19 crisis. A correction may be imminent.
Finally, in addition to the Russell 2000, you also have the Russell 3000. The latter contains 3000 positions instead of 2000. Both trackers can be purchased through eToro, Freedom24 and other well-known investment apps.
Would you like to buy the IWM commission-free through eToro? Click here to create an account for free.
6. Best Large Cap ETF eToro: Invesco QQQ Trust Series 1 (QQQ)
My favorite Exchange Traded Fund is the Invesco QQQ Trust Series 1 (QQQ). This tracker tracks a selection of 100 innovation companies. Thanks to this tracker, you would have had an average annual return of >25% over the past five years. This best ETF at eToro (and other platforms) performs well above average.
QQQ's performance is primarily due to large investments in the largest companies. For example, the top 10 currently make up 52.8% of its total weight. Major powers such as Apple, Alphabet, Amazon and Microsoft continue to rise continuously.
At the time of writing, this leads to an "expensive" stock fund. There is a real possibility that QQQ will underperform in the coming years. This is because the downside risk becomes higher relative to the potential upside return. And this risk is amplified because of the disproportionate spread in the top 10 largest positions.
Any drop of -20% would be a wonderful opportunity to buy extra from QQQ.
Anyone who had invested €10,000 in QQQ after the financial crisis would have had a return of x13 12 years later. Or more than €130,000.
You also have TQQQ and SQQQ. Be extremely careful with these though. The TQQQ is an explosive ETF when the markets rise. TQQQ works with a leverage of x3. Your profit then goes x3. But beware: if the price must fall -30%, your loss is -90%. A €1000 is then only worth €100. And then you need x10 (!) return to make up for the loss
7. Best Technology ETFs eToro: ARK Innovation & Next Generation Internet (ARKK and ARKW)
ARK Innovation (ARKK) and ARK Next Generation Internet (ARKW) are not to be missed in the list of best ETFs at eToro. These are high-risk trackers that track the stock price of 35 - 50 technology companies. The fund seeks to invest in radical disruptors. These are companies that do something radically different, potentially becoming new market leaders. Successful examples include Tesla, Roku, Square and Teledoc Health.
These types of companies are extremely risky. After all, you want to invest in these early for exponential returns. This means investing at a time when these companies are still in the development/growth phase. The problem: these phases require substantial capital investments with large initial losses. At that time there is no proven revenue model that can generate high profit margins. The picture below demonstrates this:
The risk: you invest in a company that is never going to be profitable. Or that goes bankrupt because it runs out of money. Or that the development potential is worse than expected (of the company or the sector as such).
The answer: the ETFs of ARK. Thanks to this tracker you can diversify your money across 35 - 50 of these types of growth stocks. By doing so, you reduce the chance of individual risk. And in return for this higher risk, you can expect a potentially higher return:
ARK Exchange Traded Funds have soared in recent years. Doubts are now emerging about future performance. Funds are establishing "shorts" against the ARK. Meaning that you can also speculate against a price drop.
This will only increase the volatility of ARK ETFs. And this one was already significant. Price drops of -25% have occurred several times in the past five years. On the other hand, this means opportunities for "buy the dip".
One last tip: personally, I have an interest in the new ARK Exchange Traded Fund called ARK Fintech Innovation ETF (ARKF). Note that the expense ratio is 0.75% which is "expensive".
Would you like to buy the ARKK, ARKW and/or ARKF commission-free through eToro? Click here to create an account for free.
8. Best Theme ETF eToro: iShares Semiconductor ETF (SOXX)
The last of the best eToro ETFs is the iShares Semiconductor ETF (SOXX). This is a theme Exchange Traded Fund, which means it can be more medium-term (doesn't have to be). It is not too late to take advantage of the increasing demand for chips. The semiconductor sector represents the entire chain of chips. From raw material suppliers to manufacturers like Nvidia and AMD. Major players like ASML and Taiwan Semiconductor are also in this best eToro ETF.
Increasing demand is reflected in increasing returns:
At the time of writing, however, there is a shortage of chips. Realize that equity markets look ahead. The demand for chips in the future is already calculated into the price. In addition, the semiconductor sector has cyclical movements. As a result, there is the potential for larger declines. A more active investment style, either with limit orders, can be profitable with this theme ETF.
These were the 8 best Exchange Traded Funds at eToro for the long term. Pay close attention to the risks and only invest in trackers that match your risk profile. Also opt for a lot of diversification, with up to 10% per ETF. The VTI could possibly be the exception, as this is a large, global tracker.
So, what do you think of the best ETFs at eToro? Do you have any other suggestions we could add to this list? Let me know in a comment below 😊.
Official Disclaimer from eToro:
eToro is a multi-asset platform that offers investments in stocks and crypto assets as well as trading CFDs.
Please note that CFDs are complex instruments and, due to the leverage effect, carry a high risk of losing money quickly. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.