5 Top-Ranked ETFs That Crushed S&P 500 in First Half
The U.S. stock market has been enjoying a huge rally this year, with the S&P 500 Index riding its longest winning streak since November 2021. The benchmark hit the highest level since April 2022 and is up 23% from the October lows. From a year-to-date look, the S&P 500 has gained 15.3%. With the surge, the S&P 500 has erased all of the losses since the Fed started raising rates over a year ago.
Initially, the rally was concentrated in just a handful of mega-cap tech stocks driven by the enthusiasm surrounding artificial intelligence (AI) but is now widening beyond the tech industry. Easing inflation, stronger-than-expected corporate earnings and hopes that the Fed is nearing the end of its interest rate-hike cycle added to the strength (read: 5 Sector ETFs Soaring to New 52-Week High).
As such, there are winners from many corners of the investing world. We highlight five ETFs from different industries that have easily crushed the benchmark by wide margins so far this year and have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). These are VanEck Vectors Semiconductor ETF SMH, Communication Services Select Sector SPDR Fund XLC, Consumer Discretionary Select Sector SPDR Fund XLY, First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund GRID and SPDR S&P Transportation ETF XTN. These funds are likely to continue outperforming should the trends prevail.
Despite a backdrop of high inflation and looming recession fears, the S&P 500 has been largely powered by mega-cap stocks, notably those generating significant buzz in the AI sector. The "big five" — Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Amazon (AMZN), and Nvidia (NVDA) — have significantly contributed to the stock market gains, with remarkable surges in their stock prices.
The U.S. economy is still resilient, as reflected in bouts of the latest data. The labor market is showing strength, while inflation has been moderating. The economy added 339,000 jobs in May, up from April’s revised job gains number of 294,000, and hotter than 190,000 jobs that economists were expecting. Meanwhile, inflation cooled down for the eleventh consecutive month in May. The Consumer Price Index revealed that headline inflation rose 0.1% over the last month and 4% year over year in May, representing a slowdown from April's 0.4% month-over-month increase and 4.9% annual gain. This marks the smallest yearly advance since March 2021.
Retail sales again rose modestly in May, showcasing resilient consumer demand in the face of mounting economic challenges. Moreover, the Fed rate hike pause fueled the rally in the stock market though the central bank signaled more rate hikes ahead (read: Fed Pauses Rate Hike, View Hawkish: Dividend ETFs to Bet On).
With tech companies promising new developments and inflation still easing at a steady clip, the Fed's easing up on its aggressive rate hike campaign would be another boon for stocks. Historically, a pause in rate increases precedes double-digit returns in the stock market, according to Bloomberg data.
We have profiled the above-mentioned ETFs in detail below:
VanEck Vectors Semiconductor ETF (SMH) – Up 52.2%
VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which measures the overall performance of companies involved in semiconductor production and equipment. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket.
VanEck Vectors Semiconductor ETF has managed assets worth $9.5 billion and charges 35 bps in annual fees and expenses. SMH is heavily traded with a volume of 7 million shares per day and has a Zacks ETF Rank #2 with a High risk outlook (read: Chip ETFs on Track for Their Best First Half on Record).
Communication Services Select Sector SPDR Fund (XLC) – Up 34.3%
Communication Services Select Sector SPDR Fund offers exposure to companies from telecommunication services, media, entertainment and interactive media & services, and has accumulated $12.6 billion in its asset base. It follows the Communication Services Select Sector Index and holds 24 stocks in its basket. About 52.5% of the portfolio is allocated to interactive media & services, while entertainment and media round off the next two (read: Why Communication Services ETFs Surged in 2023).
Communication Services Select Sector SPDR Fund charges 10 bps in annual fees and trades in an average daily volume of 6.1 million shares. It has a Zacks ETF Rank #2.
Consumer Discretionary Select Sector SPDR Fund (XLY) – Up 28.6%
Consumer Discretionary Select Sector SPDR Fund is the largest and most popular product in this space, with AUM of $17 billion and an average daily volume of around 4.4 million shares. It offers exposure to the broad consumer discretionary space and tracks the Consumer Discretionary Select Sector Index.
Consumer Discretionary Select Sector SPDR Fund holds 53 securities in its basket, with key holdings in broad-line retail, automobiles, specialty retail, and hotels, restaurants and leisure with a double-digit allocation each. It charges 0.10% in expense ratio and has a Zacks ETF Rank #1.
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) – Up 19.7%
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund offers exposure to stocks in the grid and electric energy infrastructure sector. It follows the Nasdaq Clean Edge Smart Grid Infrastructure Index, which includes companies that are primarily engaged and involved in electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector.
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund has accumulated $844.8 million in its asset base and trades in volume of 53,000 shares a day on average. It charges 58 bps in annual fees and has a Zacks ETF Rank #2.
SPDR S&P Transportation ETF (XTN) – Up 18.4%
SPDR S&P Transportation ETF tracks the S&P Transportation Select Industry Index, holding 47 stocks in its basket. About 30% of the portfolio is dominated by passenger airlines, while cargo ground transportation and air freight & logistics round off the next two with double-digit exposure each.
With AUM of $226.1 million, SPDR S&P Transportation ETF charges 35 bps in fees per year from its investors and trades in a volume of around 23,000 shares a day. It has a Zacks ETF Rank #2.
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VanEck Semiconductor ETF (SMH): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
SPDR S&P Transportation ETF (XTN): ETF Research Reports
First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF (GRID): ETF Research Reports
Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports
