Bryan Armour: Stocks had another banner year in 2024, while bonds did enough to stay in the black. The growth-led rally continued from 2023 with tech and communication-services stocks leading the market. But unlike 2023, it wasn’t just the “Magnificent Seven” propelling markets forward. Utilities, banks, and consumer cyclicals also outperformed the broader market. In contrast, energy and basic-materials stocks were the biggest laggards. In bond land, duration risk continued to weigh on performance, while credit risk paid off handsomely.
The ETF market also had a hallmark year by breaking its annual flows record after surpassing $1 trillion of net inflows in 2024. More than 650 new ETFs also launched this year, beating last year’s record by more than 150.
As markets bubble higher and the ETF menu becomes distractingly long, it’s helpful to revisit our top ETFs and their ability to reward long-term investors. In fact, I own all the ETFs in today’s video. Here are three of my favorite US ETFs for 2025 and beyond.
3 Great US ETFs for 2025 and Beyond
- Vanguard Total Stock Market ETF VTI
- Dimensional US Targeted Value ETF DFAT
- Fidelity Total Bond ETF FBND
The first ETF on my list is Gold-rated Vanguard Total Stock Market ETF, ticker VTI. With a single buy order, investors can own 3,600 US stocks. This ETF helps investors achieve the long-term expectation of equity investing without trying to beat the market and incurring the requisite costs from trying to do so.
You would be hard-pressed to find a better diversified ETF for buy-and-hold investors. This ETF surfs on the crest of the market wave, following its lead rather than fighting to race it to shore. It eschews market-timing and security selection and focuses on limiting costs instead. Last year only 2% of its portfolio turned over, mitigating the trading costs that can gnaw at performance. Perhaps its biggest competitive advantage is its minuscule 0.03% fee, a huge discount to its median category peer’s fee of 0.70%.
VTI earns its keep not by being a top performer each year, but by consistently falling in the top half of its category. Compounding that annual advantage has propelled this ETF into the top quartile of the large-blend Morningstar Category over the trailing 15 years. We expect to see it in the top quartile again over the next 15 years.
The second ETF on my list is Silver-rated Dimensional US Targeted Value ETF, ticker DFAT. This ETF targets small- and mid-cap stocks with a combination of profitability and reasonable prices while keeping costs in check.
Diversification and factor exposures drive this portfolio. It holds over 1,500 companies with just 6% of its assets in its top 10 largest positions. The ETF’s price/book ratio has been similar to the Russell 2000 Value index, but tilting toward profitable firms means its profitability has been higher than the index.
Controlling costs is this ETF’s superpower as well. Trading in small caps can quickly add up costs for a fund. This ETF mitigates this by reducing turnover and affording its traders flexibility to find good prices when buying and selling. Traders’ impact is limited though—last year the portfolio saw just 3% turnover. The ETF’s fee also doesn’t cut too much into performance at 0.28%.
The result of Dimensional’s careful, time-tested approach has been consistent outperformance. Its total return has sat just outside the top 10% of the funds in the small-value Morningstar Category over the trailing 15 years.
The last ETF on my list is Gold-rated Fidelity Total Bond ETF, ticker FBND. This active ETF takes a flexible approach to US-dollar-denominated bonds that the team has managed well. Besides investing in the typical investment-grade corporate credit, mortgages, and US Treasuries that constitute the strategy’s Bloomberg US Aggregate Bond Index benchmark, the portfolio managers may allocate up to 20% in non-investment-grade bonds, including high-yield and emerging-markets debt, when the team finds market valuations compelling.
Flexibility has advantages in the fixed-income market. It can be harder to find trading partners for bonds or to source ones with desirable characteristics. Likewise, opportunities can move around the bond market depending on interest-rate outlook and credit spreads. It makes sense to give the keys to a seasoned team with a track record of success to manage this changing environment.
This approach has worked for bond investors. FBND has landed in the top half of its category for seven straight years, including in 2024. That has led to top-quintile performance relative to category peers over the past decade. Its low fee and strong management should keep it near the top of the list over the next decade.
That’s it for this month. Tune into morningstar.com/topics/etfs for more ETF content.
Watch 3 Great ETFs Having a Lousy 2024 for more from Bryan Armour.
