The S&P 500 has been around since 1957. The index offers broad exposure to various sectors. The index lists 500 publicly traded corporations that must all fulfill a few requirements. Each company must be profitable over the trailing 12 months and have reported a profit in the most recent quarter. The S&P 500 also imposes market cap minimum requirements and other parameters.
The index isn’t open to every company, and these guardrails have resulted in impressive long-term returns. The S&P 500 has gained 16% year-to-date and has rallied by 85% over the past five years.
Although these gains would make most investors happy, a few outperforming ETFs have generated higher returns. It’s possible to beat the S&P 500 by analyzing what stocks have contributed the most to the S&P 500’s success. It’s also possible to avoid struggling companies in the index instead of doubling down on them. These three outperforming ETFs have bested the S&P 500 year-to-date.
Roundhill Magnificent Seven ETF (MAGS)
The first ETF on this list is a blatant and successful attempt at mimicking the S&P 500’s best holdings. The Roundhill Magnificent Seven ETF (NASDAQ:MAGS) only holds onto stocks within the Magnificent Seven group. These big-tech mega-cap giants have powered the S&P 500 higher for several years, so it’s no surprise to see that this fund has outperformed the index.
MAGS shares have gained 37% year-to-date. We don’t have 5-year data on the fund yet, since it was launched on April 11, 2023. The fund offers equal-weight exposure to the seven stocks and adjusts its holdings each quarter to maintain equal weight.
The Roundhill Magnificent Seven ETF has a 0.29% expense ratio and more than $500 million in assets under management. The low expense ratio allows investors to keep most of the fund’s gains. Right now, Tesla (NASDAQ:TSLA) is the largest holding in the fund, but that can change next quarter.
Invesco S&P 500 Top 50 ETF (XLG)
Pareto’s Principle states that 80% of the results come from 20% of the effort. This principle has been applied to various areas, including investing. Invesco decided to put this principle to the test, but the firm opted for a 90/10 model instead of an 80/20 model.
The Invesco S&P 500 Top 50 ETF (NYSEARCA:XLG) only offers exposure to the Top 50 S&P 500 holdings instead of all 500 of them. The top holdings are based on market cap, so it’s filled with tech giants. That formula has worked out so far based on the fund’s 22% year-to-date return. Shares have more than doubled over the past five years.
Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA) are the top three holdings. Each of them makes up more than 10% of the fund’s total assets. A higher concentration in big tech companies has been beneficial for the fund and its investors.
iShares Semiconductor ETF (SOXX)
The iShares Semiconductor ETF (NASDAQ:SOXX) is the top-performing fund on this list. SOXX has delivered a 25% year-to-date return and has surged by 241% over the past five years. It prioritizes the semiconductor industry. Corporations in the sector produce critical chips that go into computers, cars, refrigerators and various appliances.
SOXX has outperformed the S&P 500 for more than a decade, but AI chips have fueled the fund to new highs. Broadcom (NASDAQ:AVGO) is the largest holding in the fund and makes up more than 9% of its total assets. Nvidia is a close second, making up 8.5% of the fund’s total assets. The fund has a 0.35% expense ratio.
Investors who believe artificial intelligence tailwinds will last for several years may benefit from accumulating shares. SOXX only has 30 holdings. While that’s not many stocks, the portfolio has worked for several years. However, you may want to buy another fund in addition to SOXX to diversify your holdings across multiple sectors.
On this date of publication, Marc Guberti held long positions in MSFT, AAPL, NVDA and AVGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
