3 Top Index Funds in July

Index funds, or ETFs, are a great way to get exposure to parts of the market where you may not be ready to pick individual stocks or even be able to. It's tough to invest in some countries, but funds can make it possible. And even broad bets like small caps or growth stocks can be better made through an ETF rather than buying individual stocks.

There are lots of index funds to choose from, so we put together a list of our favorites this July. And iShares MSCI Brazil Capped ETF (NYSEMKT: EWZ), iShares Core S&P Small-Cap ETF (NYSEMKT: IJR), and Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) are at the top of the list. Here's why they're great bets in this market.

Be greedy when others are fearful

Rich Smith (iShares MSCI Brazil Capped ETF): You all probably remember May 18, right? The day the Brazilian stock market collapsed?

It happened when Brazilian newspaper O Globo ("The World") implicated Brazilian President Michel Temer in a scheme to bribe former House speaker Eduardo Cunha to keep quiet about an investigation into corruption pervading the Brazilian government. The local stock market fell 16% in a day -- and still hasn't bounced back, recovering only 6% of its losses in the nearly two months since.

Today, the Brazilian stock market as a whole offers one of the most compelling values in the world. Research firm Star Capital calculates the value of the local stock market at just 10.7 times its average earnings of the past 10 years -- less than half the valuation of the U.S. stock market. And the iShares MSCI Brazil Capped ETF offers a great way to invest in it.

With $5.5 billion in assets, the iShares MSCI Brazil Capped ETF is one of the larger Brazilian-concentrated ETFs. It aims to track the performance of the MSCI Brazil 25/50 Index by focusing its investments in relatively stable large and medium-sized companies, primarily in the financials sector, but with investments extending broadly (in order) from consumer staples to energy and all the way down to real estate. Two of the ETF's largest holdings are banks Itaú Unibanco Holding S.A. and Banco Bradesco S.A., while its No. 2 holding is the well known beverages concern Ambev, and its fourth largest holding is oil giant Petrobras.

The iShares MSCI Brazil Capped ETF charges a 0.63% management fee to its investors. Not only is this far below the average 1.5% expense ratio among mutual funds specializing in foreign stocks, but it's a fee quickly repaid by the ETF's 1.7% annual dividend yield. And if the Brazilian market recovers from its recent slump, as I expect it will once the political situation settles down, I expect this ETF to handily outperform the market.

Of course, by the time that happens, I expect the ETF to cost a lot more -- making July the time to buy in before the rebound happens.

Think small

Dan Caplinger (iShares Core S&P Small-Cap ETF): Most investors pay closest attention to the major market benchmarks like the Dow Jones Industrials and the S&P 500. By doing so, you can miss out on the more exciting things that happen among small-cap companies, which tend to include the fastest-growing, most promising stocks in the entire market. The iShares Core S&P Small-Cap ETF is one of the cheapest ways to get exposure to small-caps, with an expense ratio of just 0.06% per year.

Small-caps have outpaced the returns of their larger counterparts over the past year, and the iShares ETF has given investors a return of more than 21% since July 2016. That compares to about 16% for the S&P 500, and over longer periods of time, the outperformance from small-caps has been even more evident.

The iShares Small-Cap ETF isn't the only small-cap oriented exchange traded fund in the market, but it offers the best combination of trading liquidity and low management costs. Although you can find some ETFs with lower expense ratios, the fact that they generally trade fewer shares means that it can be more expensive to buy and sell shares, especially if you anticipate making trades frequently. The U.S. economy looks strong heading into the summer, and small-caps will be well positioned to take advantage.

Growth where it counts

Travis Hoium (Vanguard Dividend Appreciation ETF): As tech stocks have taken Wall Street by storm the importance of reliable dividends seems to have waned. But that presents an opportunity for investors looking for reliable long-term cash flows from dividends and Vanguard Dividend Appreciation ETF is a great way to get exposure to the cream of the crop in growing dividends.

The ETF is made up of companies who have at least 10 years of history increasing their dividends and their businesses are some of the most stable in the world. Companies like Microsoft, PepsiCo, Johnson & Johnson, and 3M are top holdings of the ETF and they have businesses that have endured and generated billions in cash for decades now.

Steady dividend stocks may not be the most exciting investments on the stock market, but if you're looking to make money off the steady stream of cash industrial and consumer giants are making the Vanguard Dividend Appreciation ETF is a great place to look. And with a low expense ratio of 0.08% and a dividend yield of 1.92%, a figure that's intended to appreciate steadily quarter after quarter, this is a great cash flow stock for investors building a portfolio or funding their retirement.

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*Stock Advisor returns as of July 6, 2017The author(s) may have a position in any stocks mentioned.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Dan Caplinger has no position in any stocks mentioned. Rich Smith has no position in any stocks mentioned. Travis Hoium owns shares of 3M and Johnson & Johnson. The Motley Fool owns shares of and recommends Johnson & Johnson and PepsiCo. The Motley Fool has a disclosure policy.