These ‘lucky seven’ ETFs left the S&P 500 in the dust in the past decade-plus
Late last year, I did a deep dive into how sector funds had done, and I stumbled upon the astonishing outperformance of four sector ETFs that rose at least five-fold from the start of 2007, when several were opened.
Three other sector and niche funds I track returned more than six times investors’ money over those 14 years. So, altogether, the seven exchange traded funds beat the SPDR S&P 500 ETF SPY,
Not surprisingly, technology ETFs were standouts, alongside a biotechnology ETF and one that focuses on the largest initial public offerings (IPOs). An equally weighted health-care ETF and a consumer cyclical sector fund round out the list.
If you had invested $20,000 in any of them in 2007, you would have made more than $100,000 by the end of last year, and sometimes much more.
But before I name the big winners, here’s a huge disclaimer: These ETFs have flourished while technology has ruled. And given the market’s wildly high valuations, I wouldn’t buy these ETFs aggressively now but would wait for a market correction to add to my positions or establish new ones.
Also, the market may find new leadership in the years to come, and today’s sensational outperformers may be tomorrow’s laggards and duds.
So, here are our “lucky
seven” winners:
Yahoo Finance data
The best performer over the period was the Invesco QQQ Trust QQQ,
Had you bought QQQ on Jan. 3, 2007, you would have made more than eight times your money: A $20,000 investment then would have been worth about $164,000 at the Dec. 31, 2020, close, a 720% gain. Wow. The modest 0.2% expense ratio makes it cost-effective, too, and its beta (variability with the market) isn’t much higher than the S&P’s 1. Its 10-year standard deviation (the variability from its average return) is also a pretty modest 15.6%.
But at least 40% of QQQ’s assets are in Apple AAPL,
The Technology Select Sector SPDR ETF XLK,
The Invesco S&P 500 Equal Weight Technology ETF RYT,
Invesco S&P 500 Equal Weight Health Care ETF RYH,
Finally, the First Trust US Equity Opportunities ETF FPX,
If I had to choose, I’d buy QQQ, RYH, IBB and FPX, but I’d make them a small part (no more than 10%) of a broadly diversified stock portfolio, particularly in a retirement account or Roth IRA. At these levels, I’d either average into them a little at a time or wait for a correction to establish positions.
Howard Gold is a
MarketWatch columnist. Follow him on Twitter @howardrgold1. He and his wife own
small positions in all of these ETFs except for XLY in their retirement
accounts.