Harry Domash's Winning Investing

Best ETFs For Long Term Holds

In a previous column, I featured the highest returning conventional mutual funds over the past 12-months that also beat the S&P 500’s average annual three- and five-year returns. The object was to spotlight hot funds that were likely to continue their winning ways. In this column, I’ll do the same thing for exchange-traded funds (ETFs)

ETFs and conventional mutual funds are similar in that both track the performance of a portfolio of stocks that adhere to a particular theme such as semiconductor chip makers, retail stores, etc. The major difference is that most mutual funds are actively managed while most ETFs simply track an index.

Presumably, funds managed by professionals who can react to changing market conditions should outperform funds tracking a relatively-fixed index that is only updated quarterly or semi-annually. But that’s not necessarily the case.

For proof, here are the five highest returning ETFs over the past 12-months that also beat the S&P over the past three and five years. As you’ll see, the ETF returns are competitive with, if not better than the mutual funds listed in my previous column.  

To better diversify this list, I’ve omitted funds that essentially duplicate ETFs already listed. Also, I’ve omitted leveraged funds, which are funds that hype returns by doubling or tripling the price action of the tracked stocks. Keep in mind that although such funds double or triple returns in a hot market, they also double or triple losses when stocks drop.

For reference, the S&P returned 14% over the past year, and averaged 12% and 13% annual returns over three and five years. s

Invesco S&P SmallCap Health Care (PSCH)

Tracks a 71 stock index comprised of U.S .based healthcare stocks. Biggest holdings include Ligand Pharmaceuticals , Monster Neogen, HealthEquity and Imogen. The fund returned 53% over the past 12-months, and 22% and 25%,, on average annually, over the past three and five years.

First Trust Dow Jones Internet Index (FDN)

 Tracks 42 stocks that derive at least 50% of sales via the Internet. Almost all are U.S.-based, but 2% are in Asia. Biggest holdings: Amazon.com, Facebook, Netflix and Salesforce.com Returned 47% over the past12-months, and averaged 27% and 16%  annual returns, over three and five years.

Invesco Dynamic Software (PSJ)

Tracks 31 U.S.-based firms loosely defined as being in the software industry. Biggest holdings: Liberty Broadband, Salesforce.com, Intuit, and Service Now. Returned 35% over 12-months, and averaged 22% and 21% annual returns, over three and five years.  

Invesco Russell MidCap Pure Growth (PXMG)

Tracks 99 stocks from the Russell Midcap Index that show strong growth characteristics based on a secret “style score.” Biggest  holdings include Square, Abiomed, Floor & Décor Holdings, and Chipotle Mexican Grill.. Returned 34% over 12-months and averaged 15% and 14% over three and five years.

SPDR S&P Health Care Equipment (XHE)

Tracks 72 stocks involved in the manufacture of healthcare equipment and/or healthcare supplies. Biggest holdings: Tandem Diabetes Care, Merit Medical Systems, iRythm Technologies, and AxoGen. Returned 31% over 12-months, and 22% annually over the past three and five-years.

As always, past performance doesn’t predict the future.  These days, the market could turn upside down overnight.

Published 7/16/18

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