Lan Anh Tran: As your asset allocation drifts alongside market movements, it’s prudent to periodically revisit your portfolio and rebalance your holdings back to your target risk profile. The market has definitely moved in some interesting ways this year, so here are three ETFs that can either help streamline your rebalancing process or spark some interesting ideas.
3 Great ETFs for Rebalancing Your Portfolio in 2025
- T. Rowe Price Dividend Growth ETF TDVG
- Vanguard Total World Stock ETF VT
- Fidelity Total Bond ETF FBND
This year has been a boon for international stocks as they have finally outpaced US stocks after years of underperformance. As a result, your domestic and foreign stock split might look a little more well-traveled than you might want it to be. So if you need to rebalance back toward US stocks, consider Gold-rated T. Rowe Price Dividend Growth ETF TDVG.
Industry veteran Tom Huber leads this ETF, supported by T. Rowe Price’s solid equity analyst team. The ETF focuses on financially healthy companies that have consistently grown their dividends over time while aiming for a total portfolio yield of about 200 to 250 basis points. This balances the high-quality tilt of a dividend growth mandate with a reasonable payout target. The resulting portfolio features around 100 companies that tend to have sound balance sheets, high levels of free cash flow, and sustainable economic moats. The manager has the flexibility to hold on to firms through time of distress and dividend cuts or pause, provided their business case is still sound. This reduces unnecessary turnover compared to some index-based dividend strategies with more rigid rules.
The fund’s strong process has paid off well this year. It beat the large blend Morningstar Category Index by 3.6% during the first five months of 2025 with lower volatility. It recently earned an upgrade to its Process Pillar rating from Above Average to High, and perhaps it might earn a spot in your portfolio as well.
On the other hand, if you were not holding international stocks before and only now realizing their diversification potential, consider shifting your next contribution toward Gold-rated Vanguard Total World Stock ETF—VT.
Diversification and low cost are likely the two traits that come to mind when you think of Vanguard ETFs. This ETF is simply the pinnacle of that ethos. It captures the entire global stock market in a single portfolio that costs only 6 basis points. It tracks a FTSE Global All Cap Index, which sweeps in the top 98% of each country’s stock market capitalization by their free-float-adjusted market cap. Float adjustment is an important consideration in global portfolios, given the low level of public float and liquidity in a lot of emerging markets.
The ETF implements the typical best indexing practices to keep its vast portfolio manageable. This includes liquidity screens, foreign ownership restrictions calculation, and buffer rules around its cutoff point to reduce unnecessary turnover. It weights selected holdings by their market cap, which further alleviates turnover and transaction costs.
These considerations have all contributed to the ETF’s success so far. It beat the average peer in its global large stock blend Morningstar Category by 1.4 percentage points annualized in the trailing 10 years ending May 2025.
Last but not least, Fidelity Total Bond ETF—FBND. If you’re further along on your investing goal journey, and you want to start implementing more safeguard in your portfolio, you can consider this Gold-rated ETF as an option to dial down some equity risk.
Another actively managed option, this ETF sits in the intermediate core-plus bond Morningstar Category. Its mandate spans from Treasury and agency mortgage debts with lower credit risk, all the way to high-yield bonds and emerging-market debts with higher credit risk. The manager can only hold up to 20% in non-investment-grade bonds, though, which keeps the ETF’s volatility in check.
The ETF doesn’t make big duration bets, which has worked to its advantage. Its performance edge mainly comes from sensible bets on attractive sectors. The managers leverage research from Fidelity Macroeconomic Group and Fidelity Bond Specialists to formulate their top-down view of the market and adjust the portfolio sector allocation accordingly. A strong team of credit analysts round down the process, sourcing debts with attractive valuations within these sectors.
The results speak for themselves. The ETF outpaced its category index and category average by 41 and 48 basis points annualized from its 2014 inception through May 2025, respectively. It can be more volatile at times, but investors have been well rewarded with higher risk-adjusted returns, as measured by its Sharpe ratio.
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