In my previous column, I described the five highest returning conventional mutual funds, based on 12-month returns, that also beat the S&P 500’s average annual three- and five year returns. The object was to pinpoint currently hot funds that were likely to continue their winning ways. In this column, I’ll do the same thing for exchange-traded funds.
Exchange-traded funds are similar to conventional mutual funds in that both track stock portfolios of stocks belonging to a specified industry sector such as health care, social media, etc. A major difference is that because mutual funds typically specify minimum investments to establish positions, and minimum holding periods before you can sell, exchange-traded funds, which trade just like stocks, are easier to buy and sell.
Currently, high-tech stocks are outperforming the overall market. So, to keep my exchange-traded funds list diversified, I’ve omitted otherwise qualifying funds that duplicate exchange-traded funds 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.
For reference, the S&P returned 8% for the past 12 months, averaged 14% annually for the past three years and 11% annually for five years.
• Invesco Dynamic Software (ticker symbol PSJ): It tracks an index comprised of 30 U.S.-based software stocks, but not necessarily the names that first come to mind. While Microsoft and Oracle are included in its top five holdings, the top three are Cadence Design Systems, Synopsys and Intuit. The fund, up 38% year-to-date, has returned 32% for 12 months and averaged 30% and 23% annual returns for three and five years.
• SPDR S&P Semiconductor (XSD): Fund tracks a mix of 35 large-, mid- and small-capitalization chipmakers. Similar to the Invesco fund, many of its biggest holdings are relatively unknown players. For instance, although two of the top five, Micron Technology and Cirrus Logic, are familiar names, I hadn’t heard of the remaining three; Inphi, Semtech and Universal Display. The fund has returned 24% for 12 months and averaged 22 percent annually for both three years and five years.
• ARK Genomic Revolution (ARKK): An actively managed fund that focuses on small- and mid-cap stocks that are developing products and technologies intended to enhance the quality of human life. Specialties include targeted therapeutics, molecular diagnostic, stem cells and other advanced technologies. Five biggest holdings: Ilumina, Invitae, Intellia Therapeutics, CRISPR Therapeutics and Editas Medicine. Only trading for four years, ARK has returned 20% for 12 months and averaged 24% annually for three years.
• iShares US Medical Devices (IHI): Fund tracks large-cap U.S.-based stocks operating in the medical devices sector. Biggest holdings include Abbott Laboratories, Medtronic, Thermo Fisher Scientific, Danaher and Edwards Lifesciences. The fund has returned 19% over 12 months, and averaged 20% annual returns over both three and five years.
• Global X Millennials Thematic (MILN): You knew that this had to happen. This fund tracks stocks most appealing to those born between 1980-2000. Top holdings: Starbucks, Walt Disney, Fiserv, Costco Wholesale, and, of course, Facebook. The fund, only trading for three years, has returned 17% for 12 months and averaged 18%, annually for three years.
As always, past performance doesn’t predict the future. This hot market has got to cool sooner or later.
Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 324 Encinal St., Santa Cruz, CA 95060. To see previous Domash columns, visit santacruzsentinel.com/topic/Harry_Domash.