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Exchange-traded funds (ETFs) have become a popular financial vehicle over a short period of time, particularly among beginner investors. ETFs are a collection of stocks, commodities or bonds that have relatively low expense fees and often track specific indexes. Assets invested in the global ETF industry rose by 26% in 2023 to a record $11.63 trillion, according to research firm ETFGI.
Unlike many mutual funds, ETFs can be traded over regular exchanges in real time and provide built-in diversification, reducing an investor’s overall level of risk. They can also provide a less expensive exposure to quality stocks.
In this guide, we explore some ETFs that have performed well, not just this year, but over the past five years. Read on to discover our picks of the 10 best ETFs to consider for your portfolio.
Best ETFs to Buy in 2024
Here’s an overview of the top 10 ETFs available in the market today:
VanEck Semiconductor: As the name suggests, this ETF focuses on the stocks of chipmakers, replicating the price and yield performance of the MVIS US Listed Semiconductor 25 Index.
Technology Select Sector SPDR Fund: It represents technology stocks in the S&P 500 index, including technology hardware, software, communications equipment, IT services and electronic equipment.
iShares U.S. Home Construction ETF: The fund focuses on homebuilders’ stocks. It has several tailwinds this year, including a better interest rate and pricing environment, along with a continued housing shortage.
Global X Uranium ETF: It tracks the Solactive Global Uranium & Nuclear Components Index, giving investors exposure to uranium, a key raw material for power production that can’t be traded via futures.
The Invesco S&P MidCap Quality ETF: It invests nearly all its assets in stocks in the S&P MidCap 400 Quality Index, which tracks about 80 securities with the highest quality scores in the S&P Midcap 400 Index.
Vanguard S&P 500 ETF: This ETF tracks the S&P 500 index, which contains mostly large-cap blue chips stocks. It’s a relatively stable ETF, and over the past five years has risen 94%.
Fidelity High Dividend ETF: It invests in stocks expected to continue to raise their dividends. About 90% of its holdings are U.S. stocks, with others from Japan, the Netherlands, Denmark, Italy and Belgium.
Health Care Select Sector SPDR Fund: It tracks stocks in the Health Care Select Sector Index, using a replication strategy. The fund has assets of slightly more than $40 billion.
Invesco S&P SmallCap Momentum ETF: It tracks the S&P 600 High Momentum Value Index, made up of 120 stocks with high scores on momentum and value. The fund provides access to high-growth stocks.
Vanguard Total International Stock ETF: The fund gives exposure to international stocks, many of which are more reasonably priced than U.S. stocks. Roughly 75% of its stocks are from developing markets.
A Closer Look at the Best ETFs to Invest in
Now, let’s take an in-depth look at the top ETFs to invest in 2024:
1. VanEck Semiconductor ETF – Following Leading Chipmakers
The VanEck Semiconductor ETF has given a total return of around 314% over the past five years, well above the S&P 500’s total return of 97% over the same period. There’s plenty of optimism about the sector going forward with growth driven by the rising demand for AI chips. Also, the introduction of 5G means that smartphone makers will be buying advanced chips with AI functionality and the increasingly complex nature of cars is driving demand for semiconductor technology.
The fund holds only 26 stocks. Some of the ETF’s top holdings include: Nvidia (NASDAQ: NVDA), which is looking to expand its global reach and increase its AI chip production; Taiwan Semiconductor Manufacturing Co. (NASDAQ: TSM), which produces advanced 3-nanometer chips; and ASML Holding (NASDAQ: ASML), whose lithography systems are crucial for chip circuitry.
So far this year, the ETF has a total return of 29.19%, again well over the S&P 500’s total return of 9.66%. The fund has better than average expense ratio against its peers, and assets under management (AUM) of $18.86 billion, which makes it a huge ETF.
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2. Technology Select Sector SPDR Fund – Focusing on Tech Giants
The fund focuses on larger technology stocks and has had a total return of 184% over the past five years. It aims to replicate the Technology Select Sector Index, which tracks tech stocks in the S&P 500. The ETF uses a replication strategy where it usually invests in all securities included the index, mirroring their weight.
The fund holds 65 technology stocks, with more than 23% of its shares in Microsoft (NASDAQ: MSFT) and more than 19% of its shares in Apple (NASDAQ: AAPL). All of the rest of its holdings, including Nvidia and Broadcom (NASDAQ: AVGO) are less than 5%.
The fund is heavily tilted toward software companies, with 40% of its holdings in that sector, followed by 26% of its holdings in semiconductor stocks and 22% in technology hardware, storage and peripherals companies. It’s a large fund with an AUM of around $64.2 billion. It has a very low expense ratio of 0.09% and a dividend yield of around 0.84%.
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3. iShares U.S. Home Construction ETF – Plenty of Growth to Build on
The fund attempts to track the Dow Jones U.S. Select Home Construction Index. Over the past five years, it has a total return of around 211%, including a more than 10% rise this year. It has an AUM of $3.1 billion invested across 46 stocks, led by large holdings of leading U.S. homebuilders D.R. Horton (NYSE: DHI) and Lennar Corp. (NYSE: LEN) It also owns shares in companies that indirectly benefit from an increase in home building, including Sherwin Williams and Home Depot.
The biggest reason to be bullish on home construction stocks is the shortage of new housing. While higher interest rates slowed home buying last year, a recovery is underway. The National Association of Home Builders/Wells Fargo Housing Market Index has risen for four consecutive months and it’s at its highest level since July.
The ETF, despite its success, trades at a reasonable valuation, with a price-to-earnings ratio of below 13 and a price-to-book (PB) ratio of around 2.63. Its expense ratio is reasonable for a managed ETF.
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4. Global X Uranium ETF – Fueled by Nuclear Energy Need
Uranium is a rare mineral and it’s a critical component for nuclear power plants. Five years ago, a pound of uranium cost about $20 and today, it is about $71. This kind of price growth has been good news for uranium stocks, but there’s risk associated with any individual company in the commodities sector. The Global X Uranium ETF balances that risk a bit by investing in the 49 stocks that are on the Solactive Global Uranium & Nuclear Components Index.
The fund has delivered a total return of around 176% over the past five years. Its largest holding is around 22% in Cameco Corporation, a Canadian company that owns high-grade uranium reserves. Its next largest holding is Sprott Physical Uranium Trust, the largest physical uranium fund, where 8% of Global X Uranium’s assets are allocated.
The price of the targeted fund, like that of uranium itself, can be volatile and the expense ratio is relatively high, but its dividend yield is also high at 5.86%. Demand for uranium is expected to climb in the long term and the fund is a less risky way of gaining exposure to the sector than investing in one uranium company.
Over the past five years, the fund is up more than 121%, and so far this year, it’s up more than 22%. It owns 50 stocks, none of which represent more than 3% of its assets. Some of the top companies it owns include Williams-Sonoma (NYSE: WSM), Carlisle Companies (NYSE: CSL), and Owens Corning (NYSE: OC).
It’s a relatively large ETF with an AUM of $4.6 billion. It’s a good diversification vehicle for investors as none of its stocks are in the S&P 500. It also trades at a relatively low P/E of around 17. It delivers a dividend that currently yields around 0.59%, and the fund’s expense ratio is a low 0.25%.
The advantage of a mid-cap ETF is there’s a lot more potential for growth than there is with a large-cap ETF. While that frequently means more risk, the Invesco S&P MidCap Quality ETF focuses on well-managed mid-sized companies, placing an emphasis specifically on companies’ returns on equity, accruals ratios and financial leverage ratios as it seeks stocks that aren’t dragged down by a lot of debt.
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6. Vanguard S&P 500 ETF – Big, Diversified and Stable
This is a good ETF for conservative, risk-averse investors, providing stable growth. It’s very diversified, with 505 holdings, led by 7% of its assets in Microsoft and 6% in Apple. With many of these companies offering dividends, the ETF has a dividend yield of 1.44%.
The ETF is passively managed and simply attempts to replicate the S&P 500 index. Because of that, its expense ratio is the lowest on this list. Its dividend yield is around 1.33%. It’s an excellent ETF for long-term investors who aren’t as concerned with growth as with stability. The S&P 500, made up of blue chips, has shown itself capable of bouncing back from various recessions and bull markets over the decades.
The ETF is the third largest in the U.S., based on net assets, with AUM of $435 billion. It’s a good fund for investors who are seeking broad exposure to mega-cap and large-cap stocks.
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7. Fidelity High Dividend ETF – Great for Income-Oriented Investors
The passively managed fund tracks the Fidelity High Dividend IndexSM, investing at least 80% of its assets in stocks that are in that index. The fund delivers a dividend yield of around 3.22%, more than double the S&P 500’s average yield. It focuses on the health of those stocks, looking for companies with sustainable dividends, based on their payout ratios.
The fund holds 118 stocks and has a total return of more than 77% over the past five years and more than 21% over the past 12 months. It’s priced reasonably at less than 12 times earnings and has a low expense ratio.
More than three-quarters of the fund’s holdings are large-cap stocks, which makes sense because those tend to be dividend-paying stocks. It’s well-diversified with no holding representing more than 6%. The top holdings are Microsoft at 5.8%, Apple at 4.75% and Nvidia at 4.64%. The largest sector represented by the fund is industrials (16.17%), followed by consumer staples (12.26%) and energy (11.80%).
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8. Health Care Select Sector SPDR Fund – Benefits From Sector’s Growth
Healthcare stocks are a good hedge against both inflation and economic downturns because their finances are based more on people’s somewhat inflexible medical needs. While parts of the sector struggled during the COVID-19 pandemic, plenty of trends point to solid long-term growth. Through 2031, the average National Health Expenditures growth is expected to be 5.4%, outpacing the U.S. average gross domestic product growth of 4.6%, according to the Centers for Medicare and Medicaid Services.
The fund has diversification in the sector and its 65 stocks include health care equipment and supplies companies, health care providers and services, plus biotech and pharmaceutical companies.
Over the past five years, the fund has delivered a total return of more than 69%. Its largest asset is Eli Lilly (NYSE: LLY) at 11.64%, followed by UnitedHealth Group (NYSE: UNH) at 8.01%. Compared to other healthcare ETFs, it has a low expense ratio and delivers a yield of 1.49% on its quarterly dividend.
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9. Invesco S&P SmallCap Momentum ETF – A Less-Risky Way to Invest
The advantage of small cap stocks is their potential growth is more than mature, large-cap companies. The downside is they don’t have the same financial reserves, so they’re at a greater risk in adverse circumstances and certainly more volatile. This fund gives investors a basket of 119 small cap stocks that mitigates the risk of investing in a handful of small-cap companies.
The fund’s holdings are very diverse. Abercrombie & Fitch (NYSE: ANF) is the largest asset and it makes up only around 3% of the ETF’s holdings. The fund is somewhat targeted toward small-caps with momentum, so that suits investors who are looking to add to their small-cap exposure.
The fund is only rebalanced twice a year, which keeps the expense ratio is check. It’s only up 67% over the past five years, but over the past 12 months, it has gained more than 30% and has outperformed the S&P 500 index. It also offers a dividend with a yield of 0.68%.
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10. Vanguard Total International Stock ETF – Poised for a Rebound
The fund only had a total return of around 31% over the past five years, but it provides a good exposure to international stocks. It’s passively managed and tracks the performance of the FTSE Global All Cap ex US Index, a float-adjusted, market-capitalization-weighted index used to measure equity market performance of companies in international markets, excluding the U.S..
The fund holds 8,566 stocks, providing diversity across sectors and various geographic areas, and delivers a great dividend with a yield of around 3.25%. About 70% of its holdings are large-cap stocks. It also has a very low expense ratio.
The thinking with this ETF is international stocks have lagged U.S. equities for the past few years, so a rebound would potentially mean big gains for investors in the fund. In the meantime, the ETF is trading at under 14 times earnings.
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Five-Year Performance of Our Best ETFs Picks
The following chart shows the total returns (price appreciation plus income from dividends) of our selection of the 10 best ETFs we explored above:
The VanEck Semiconductor ETF was the best performer with a 324% five-year total return, followed by iShares US Home Construction ETF, which returned 211% over the same period. The laggard was the Vanguard Total International Stock ETF with a 31% return.
For comparison, the average total return for the S&P 500 index over the past five years was 97%. Five ETFs on our list have performed better than the S&P 500 average and five of them have underperformed.
What Are ETFs?
Exchange-traded funds (ETFs) are a relatively new investment vehicle. The first ETF, the SPDR S&P 500 SPY, launched in 1993. They have experienced exponential growth in the past decade.
As we mentioned total assets in global ETFs rose by more than a quarter to a record $11.63 trillion in 2023. That was from $9.26 trillion at the end of 2022, ETFGI said. ETFs attracted net inflows of $974.87 billion last year, the consultancy said.
U.S. ETFs had net inflows of $598.3 billion in 2023, a separate report by Morningstar showed.
Source: ETFGI data
ETFs are baskets of stocks, bonds, or a combination of the two. They trade on traditional stock exchanges, unlike traditional mutual funds and they have relatively low fees.
ETFs can either be passively managed, meaning they generally track well-known indexes, or they have managers who actively buy certain stocks or bonds in an effort to do better than a particular index. Actively managed ETFs generally have higher fees but can have better performance.
ETFs can be made up of stocks. They can also be thematic in nature, such as focusing on a particular sector or have a focus on ESG investing or a cryptocurrency. There are also bond ETFs that invest in a mix of fixed-income securities issued by governments, municipalities, or corporations.
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Why Invest in ETFs?
These investment vehicles have gained in popularity over the past decade and there are now more than 10,000 ETFs globally. Here are three more reasons why ETFs are popular:
ETFs Can Improve Portfolio Diversification
You can invest in many different stocks at the same time by buying shares of ETFs, without spending a lot of money upfront. ETFs can provide diversification at a lower cost than it would take by spreading out your equity purchases into different sectors and with different types of companies.
You still need to do your due diligence because not all ETFs are alike. Some of them track more volatile sectors or markets, such as energy. You want to choose ETFs that fit with your level of risk tolerance.
ETFs May Lessen Your Risk Exposure
Instead of buying stock in one or several companies, ETFs constantly rebalance their holdings and can give investors a broad exposure to certain sectors, or certain types of stocks, such as small-caps, mid-caps, or large-caps. If things go south with one company, the ETF quickly moves on to better performing stocks, taking a bit of the guesswork of investing out of your hands.
ETFs Offer a Good Starting Point to Beginner Investors
Overall, ETFs can be a great way for less-experienced investors to gain exposure to the market and build wealth over time. The decisions for ETFs are made by professionals who have access to quantitative analysis that individuals can’t always access.
ETFs are easy to buy on major exchanges and they are not difficult to research, as their websites show their holdings and track their performance. Their lower fees mean that investors can keep more of their returns, which is critical for long-term investing growth.
Many ETFs disclose their holdings daily, so you can see which companies you are invested in. They also have certain tax advantages compared to mutual funds and can lead to fewer taxable distributions.
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How to Choose ETFs for Your Portfolio
There are several key metrics that are useful in choosing an ETF to invest in. First, find out what asset class an ETF invests in (large-cap, international bonds or a wider market exposure). ETFs with a broader mix of stocks can mean less risk but also less potential for outstanding growth.
Look into how diversified is the underlying index that ETFs are trying to mimic. Some indexes are dominated by a handful of stocks and that means they have more exposure if those stocks run into financial difficulties. The more diversified the index that the ETF tracks, the less risk there is.
Make sure you know the fund’s expense ratio. They can vary widely. An expense ratio of above 1, for example, is considered high, while one below 0.40% is considered low, but expense ratios vary depending on which sector the ETF focuses on.
It’s not a minor thing. If an ETF’s expense ratio is 0.70%, that means it will cost an investor $70 a year for every $10,000 he or she invests in the fund.
What’s the difference Between ETFs and Mutual Funds?
It can be easy to confuse the two because they are both investment vehicles that pool investors’ funds to buy blocks of equities or other assets. However, there are some major differences. ETFs trade like stocks do, with their prices varying throughout the day on exchanges, depending on supply and demand. Mutual funds can only be bought and sold at the end of the trading day, based on their Net Asset Value (NAV), which is calculated by a fund manager. Essentially, you buy mutual funds directly from the fund company.
While both ETFs and mutual funds can be actively or passively managed, ETFs tend to be more passively managed, usually tracking and mirroring a specific index. That results in lower fees for ETFs than for mutual funds.
What’s the Difference Between ETFs and Index Funds?
The two are similar in many respects. Both are often passively managed and track certain indexes and are known for having low management fees. The primary difference between the two is in how they are traded.
ETFs can be traded throughout the day on exchanges, just like equities. Index funds are like mutual funds and can only be purchased at the end of the day, priced by a fund manager’s NAV. One key difference between ETFs and index funds is that ETFs have certain tax advantages over index funds and mutual funds.
Where to Get ETFs Picks and Insights
Investing in ETFs is something than can benefit nearly every investor’s portfolio. You can find ETFs through various stock screeners, but they are less well-known than many equities. An additional source for ETF picks is eToro.
To buy a variety of exchange-traded funds (ETFs), you can go to an online broker that offers trading in these stocks. In particular, you need a broker like eToro to be able to trade on exchanges around the world.
At eToro, you can buy ETFs to invest in. Just go to eToro’s Discover page and hit the “ETF” button, or search for a particular ETF ticker. You can also find ETFs through qualifiers such as “ESG ETF” or “Bond ETF,” if you are interested in a particular type of ETF but don’t know what ETFs are offered in this category.
After you finish your research, you can click on an individual ETF to get more information, including metrics that track previous performance, relevant statistics, and information on who manages it.
No matter where in the world the shares you want to buy are listed, you’ll pay no commission to trade stocks and ETFs at eToro. No deposit fee is required (except for non-USD deposits) and you open an account with just a $100 deposit (depending on your country).
eToro’s trading platform makes it easy to monitor ETFs and the platform helps users with news headlines and a sentiment indicator that shows what other traders are doing.
The eToro platform also includes a copy trading feature that allows you to track and mimic other more experienced traders on the platform.
eToro is regulated in the U.S. by the Financial Industry Regulatory Authority and the Securities and Exchange Commission.
Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees.
Conclusion
ETFs’ biggest allure for investors is that they provide ready-made diversification, helping to reduce risk to portfolios. There’s such a wide range of ETFs that you can find one tailored to what you are looking for, whether it’s more exposure to health care stocks, or for more income through dividends, or whether you’re seeking to latch onto the growth in the semiconductor industry.
Like anything that is simplified, ETFs can come with a catch. While their expense ratios are generally low, they vary widely in performance, so it makes sense to do your research. ETFs that track indexes have frequently outperformed returns from financial advisors, particularly in the long term. That’s how you should look at ETFs, as they are designed for less hands-on investors who tend to set-it and forget-it when it comes to their investing options. That’s why it makes sense to seek ETFs that have solid results over at least five years.
The VanEck Semiconductor ETF has outperformed the S&P 500 Index by three times over the past five years. With semiconductor stocks showing great growth this year, the fund provides good exposure to the sector, with the advantage of diversity.
What are the advantages of ETFs?
There are plenty of reasons that ETFs, if chosen properly, can be great investments for building wealth. They can lessen an investor’s risk profile because they provide a basket of stocks. They’re a good way of investing in a sector without having to choose one winner.
What are the disadvantages ETFs?
They do have fees, so it is important to check on an ETF’s expense ratio to make sure its fees don’t cut too deeply into your returns. Also, some ETFs may distribute capital gains during the year, which can create tax liabilities for investors even if they haven’t sold their shares.
I am an experienced journalist who has also worked as an editor and writer at the Savannah Morning News, Salt Lake Tribune, USA Today, Stars and Stripes, and The Motley Fool. I spent the first half of my career in sports journalism, but in recent years have switched to writing about my other passion, stocks, particularly healthcare, real estate and consumer staples stocks. I've won numerous journalism awards from the Associated Press and state press associations and have been a judge for the Georgia Sportswriters Association. I've written one non-fiction book, Just One More Time, about Georgia Southern football, and…
