What ETFs to Buy for February 2024
What ETFs to buy? That’s the pressing question as we find ourselves in the midst of February 2024. The recent signals from the Federal Reserve about potential interest rate cuts have ignited a bullish run in the market. The S&P 500 is up by 5.5%, while the tech-heavy Nasdaq-100 has surged by 6.7% since the beginning of the year. Individual stocks like META and NVDA have outperformed even these impressive gains, posting remarkable increases of 33% and 46%, respectively.
However, amidst the euphoria of market gains, caution is warranted. Bargain hunting in such a climate can be nerve-wracking, with the looming threat of overvaluation.
So, with this backdrop, investors are left pondering the prudent path forward – which exchange-traded funds (ETFs) hold promise in this dynamic landscape.
Nevertheless, let’s see how some of the indexes and ETFs we track compare.
| ETF | Index | P/B | Current P/E | Average Annual 10-year Return | 1-year Return |
| QQQ | Nasdaq-100 | 16.18 | 34.44 | 17.66% | 54.73% |
| SPY | S&P500 | 4.37 | 25.27 | 12.47% | 20.65% |
| XLF | S&P500-Financial Sector | 2 | 15.90 | 10.05% | 8.05% |
| IJH | Mid-Cap 400 | 2.37 | 15.00 | 9.21% | 16.42% |
| IYT | S&P Transport Select | 4.38 | 16.36 | 8.34% | 24.53% |
| IWM | Russell 2000 | 1.89 | 12.07 | 7.12% | 16.80% |
First, before we go into our take on those ETFs, we want to say that the collection of ETFs we are looking at is nowhere near exclusive. Multiple other ETFs could be looked at as well, but those are the ones we have decided to look at.
Second, all ratios like P/E and P/B, as well as annualized returns, were taken from the fact sheets supplied by the issuer of the ETFs. For QQQ, that would be Invesco; for SPY and XLF, that would be State Street; and for IJH, IYT, and IWM, that would be i-Shares.
1) QQQ ETF
We have ranked the ETFs based on 10-year returns. We believe this indicator is one of the best ways to track the attractiveness of a sector. Clearly, the champion in the category is QQQ. We wrote about that sector multiple times, but the last exclusive look was on May 2023 – Why You Must Like Technology Stocks.
Since this article, QQQ ETF has been up 35%, and from the table above, we can see it has been up nearly 55% since a year ago. We are not selling our positions here, nor do we recommend doing so, but we certainly do not think it is wise to buy at current prices.
2) SPY ETF
Next on the table is SPY. We have also recommended SPY multiple times in our blog, which has worked well. But similarly to QQQ, we are not selling our positions here, but we are not eager to buy at current prices either. With over 20% return for the last 12 months, we think the dangers outweigh the rewards.
3) XLF ETF
Moving on to the next ETF on the list – XLF, we have finally found our gem! XLF is one of the better-performing ETFs over the last 10 years. Not only that, but the price appreciation over the last 12 months is only 8%! Looking at valuations, we can see that its P/E ratio is 40% lower than that of SPY and nearly 60% lower than the P/E ratio of QQQ. But the P/E ratio is not the only attractive attribute of XLF – the ETF is trading at a P/B ratio of 2. Clearly, that is quite the defensive valuation!
4) IJH ETF
Next ETF on our list is IJH – Mid-Cap 400 Index ETF. This is really an ETF that is not widely followed. It is comprised of the top 400 companies after the 500 stocks in the S&P500. Again, those are the stocks ranked from 501-900 in terms of capitalization in the US. Similarly to XLF, the valuation at 15 P/E and 2.37 P/B is quite defensive, but the 1-year return is quite high at over 16%. This is not quite the bargain as XLF is.
5) IYT ETF
IYT is another ETF that is not widely followed – it is the S&P Transport Select Index. Its 10-year average return is not that great, and given that its 1-year return is nearly 25%, we believe that this ETF is one to avoid rather than buy. Nevertheless, given its defensive valuation, it certainly deserved to be followed for potential buys in the future.
5) IWM ETF
Finally, we arrived at IWM – Russell 2000 ETF. This ETF has the worst 10-year performance, and given that its 1-year return of nearly 17% is above that of XLF or IJH, we would rather pass. Yes, valuation-wise, it appears the cheapest, but we believe that is because small stocks deserve to trade cheaply.
Key Takeaways
As we wrap up our chat about “what ETFs to buy,” it’s clear that taking your time to think things through is really important, especially with the market behaving like it is.
Our favorite choice, XLF – S&P500 Financial Sector ETF, is a strong option with a good history and safe pricing. Don’t forget that banks and finance companies often have steady profits, even if they don’t seem as exciting as high-priced stocks.
If you’re looking for something else, consider IJH – Mid-Cap 400 Index ETF. It might not be as well-known, but many of its parts are managed well and have room to grow. When you’re deciding where to invest, think about how well an ETF has done in the long term and if it’s priced safely for the future growth of your investments.
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However, EU citizens should note that trading American ETFs isn’t available due to regulatory restrictions. Make informed choices based on your investment goals and regulatory considerations.