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