A huge amount of money goes into passive stock market tracking these days, through the S&P 500 Index (SPY) and other major U.S. indexes (DIA) (QQQ) (IWM). This strategy has done well in general in recent years and has gained popularity, particularly in retirement-type accounts.
Some of the strong performance is due to a self-fulfilling egg/chicken type scenario — as more money allocates into the S&P 500, more money buys the stocks located within the index. That, of course, assumes that inflows will remain bigger than outflows.
However, the universe of exchange-traded funds (ETFs) offers market-beating results every single year. ETFs cover the entire world of investing, from U.S. sectors to international markets to commodities — nearly every investment you can think of is represented by an ETF.
And of course, these ETFs trade just like a stock, and many have options trading available on them, which can also be utilized in self-directed retirement brokerage accounts.
Because of the incredible variety available, there are always ETFs that are drastically outperforming the market. The moves that beat the market tend to be strong momentum trends — I use a chart and indicator-based approach to zero in on the big, long-lasting uptrends.
With the first quarter of 2017 nearly complete, let’s take a look at some of the top performing ETFs by calendar year.
The S&P 500 has made a strong gain so far this year, up 7%.
However, there are many “pure play” ETFs (not Ultra, Inverse or Leveraged) that are beating the market soundly:
Uranium ETF (URA) – up 26%
Biotech ETF (XBI) – up 22%
Junior Gold Miners ETF (GDXJ) – up 20%
India ETF (EPI) – up 18%
U.S. Home Construction ETF (ITB) – up 16%
Software ETF (IGV) – up 16%
South Korea ETF (EWY) – up 15%
Latin America ETF (ILF) – up 15%
Medical Devices ETF (IHI) – up 14%
All of these names, from a diverse group of sectors, are beating the market by a factor of at least 2 times.
You might say, “These are up so much already . . . can they gain further this year?”
Well, if you look at 2015 and 2016, the top performing ETFs made astounding gains relative to the SPYders.
For example, in 2016, the S&P 500 was up 12% – a nice year.
But look at these gains:
Junior Silver Miners ETF (SILJ) – up 151%
Metals & Mining ETF (XME) – up 112%
Steel ETF (SLX) – up 100%
Coal ETF (KOL) – up 100%
Brazil ETF (EWZ) – up 66%
Russia ETF (RSX) – up 47%
All of those well-known and liquid ETFs beat the market by at least 4x.
In addition, the Russell 2000 ETF (IWM) nearly doubled the S&P 500 performance last year, gaining 22%. Even within the well-known broad market indexes, there was nice outperformance available.
Top Performing ETFs Can Boost Your Results
Selecting the right and best-performing ETFs can certainly give you market-beating performance.
Let’s go back to 2015. That was basically a flat year for SPY; it ended up gaining 1% net.
Some of the ETFs that trounced the market included:
China Mid & Small Cap ETFs (ASHS) and (CNXT) – up 36% & 46%
Medical Niche ETFs (SBIO) and (DXJH) – up 26% & 34%
Internet ETF (FDN) – up 22%
Ireland ETF (EIRL) – up 22%
Retail ETF (RTH) – up 12%
Having a portion of your portfolio in one of these names would likely have resulted in beating the market. Owning outperforming ETFs can also “juice up” your returns if you do passively own the broad market for a majority of your portfolio.
These kinds of sector-specific ETFs are not necessarily long-term “buy & holds”; they will likely need to be actively managed. Because if you do select a strong performing ETF but the price action dries up and it breaks down significantly (moves lower and violates key support and indicators), you will likely need to bail out of it to prevent potential losses.
As far as the gainers of 2017 thus far (listed at the top of this article), my tested, unique trend momentum system is bullish on virtually all of them. In my view, the ETFs among that group that have the safest overall chart patterns are (XBI) (EPI) (ITB) (IGV) and (IHI). (URA) and (GDXJ) are the riskiest and likely most volatile among that group, in my analysis.
Remember that a strong trend can go much further and last much longer than normally would be expected or anticipated. The market-trouncing results for the top ETFs from recent years show this.