While relatively new as an investment vehicle, exchange-traded funds (ETFs) have become more popular over the past few decades and some of these funds offer substantial total returns.
ETFs emerged as a new investment vehicle in the early 1990s. While nearly three decades have passed since then, ETFs are still a much more recent phenomenon in the investment world than stocks, bonds or even mutual funds. However, because of they can be traded continuously throughout the trading day like stocks and offer the easy diversification of mutual funds, investor interest in ETFs has grown rapidly.
For instance, the total number of available mutual funds increased by 17% between 1999 and 2017. However, the number of ETFs expanded more than 63-fold over the same 17-year period. Growth rates are understandably higher during the introduction and early-growth periods. Therefore, the number of new ETFs increased only 8.3% in 2018. While significantly lower than the growth rates a decade or two ago, the number of newly created ETFs still outpace, by a three-to-one margin, the creation of new mutual funds, which expanded by only 2.6% in 2018.
In addition to the sheer volume, investors have also a wide selection of funds that offer sector specific ETFs, diversified cross-sector ETFs, high-capital gains ETFs, high dividend ETFs and more. The variety certainly offers many different choices. However, investors must conduct their own analysis and due diligence to ensure that the selected ETFs are compatible with their specific investment portfolio strategy.
While investors must consider multiple aspects and metrics of potential equities, the list below focuses on high total returns. The five ETFs below have delivered extraordinary total returns over the trailing 12-month period. To eliminate some of the smaller funds that tend to be more volatile, the only requirement for inclusion on the list below was a market capitalization of at least $1 billion. From that abbreviated list of $1 billion-plus funds, below are the top five ETFs sorted by their respective total return over the last year.
The Direxion Daily S&P 500® Bull and Bear 3X Shares ETF seeks daily investment results, before fees and expenses, of 300%, or 300% of the inverse, of the performance of the S&P 500 Index (SPXT).
Information Technology is the most represented sector with more than 23.2% of total assets. Health Care, with a 14.2% share, and the Financials sector with a share of almost 13% round out the top three sectors, which cumulatively account for half of the fund’s assets.
While marginal compared to high-dividend equities, this ETF’s 0.74% dividend yield is the highest in this group. However, asset appreciation was the primary driver behind the 71% total return over the trailing 12-month period. Furthermore, this ETF also rewarded its shareholders with total returns of nearly 150% over the past three years and 233% over the last five years.
The ProShares UltraPro S&P500 ETF seeks daily returns that are three times the returns of its underlying S&P 500 Index benchmark, before fees and expenses. Mirroring the underlying index, the ETF has spread its $1.7 billion in total assets across all 505 of the S&P 500 stocks. The index has 505 components because five of the 500 included companies have two classes of stock.
As in the underlying S&P 500 index, Apple, Inc. (NASDAQ:AAPL), the Microsoft Corporation (NASDAQ:MSFT) and Amazon, Inc. (NASDAQ:AMZN) are the top three holdings and represent 10.5% of the fund’s total assets. All other holdings individually account for less than 1.5%.
With strong economic growth and the longest bull market in the last century, this ETF has delivered robust total returns over the past several years. The fund complemented a 71% total one-year return with total returns of 153% over the last three years and 242% over the five-year period.
The ProShares UltraPro QQQ ETF seeks daily investment results, before fees and expenses, that correspond to three times the daily performance of the Nasdaq 100 Index. On February 19, 2020, the ETF had nearly $6 billion in total assets spread across 103 individual stocks as well as cash and cash equivalents.
With nearly equal shares of funds, Apple and Microsoft Corporation accounted for more than 16% of the ETFs total assets. With 6.16%, Amazon was the only other holding with more than a 3% share of assets.
The ProShares Ultra QQQ companion ETF also seeks daily investment results, before fees and expenses, that correspond to the daily performance of the Nasdaq 100 Index. However, instead of seeking the triple performance of the index like its ProShares UltraPro counterpart, the ProShares Ultra seeks only double the index’s performance. In addition to this double versus triple performance difference, the only other contrast between the two is that the ProShares UltraPro trades on the NASDAQ exchange and the ProShares Ultra trades on NYSE.
With $2.84 billion in assets spread across the same 103 holdings as its Pro equivalent, the Ultra ETF’s top holdings are also Apple and Microsoft, albeit with a combined asset share of just 9%. Amazon’s 3.4% share is the only other share that exceeds 1.8%.
Targeting only a double performance of the underlying index, the Ultra ETF has delivered total returns of nearly 80% and 190% over the past one and three years, respectively. The five year total return has exceeded 300%. With its triple target, the UltraPro ETF, returned nearly 130% in just one year, as well as 315% over the past three years and 540% over the last five years.
The Direxion Daily Semiconductor Bull and Bear 3X Shares ETF seeks to mirror the daily makeup and performance of 300%, or 300% of the inverse, of the performance of the PHLX Semiconductor Sector Index (XSOX). With a narrow focus on semiconductor stocks, the fund currently comprises only 30 holdings. The fund is well diversified across the holdings with just one stock — Nvidia Corporation (NASDAQ:NVDA) — accounting for more than 8% of the fund’s total assets. Four more equities have asset shares in excess of 7% and all other holdings are below 5%.
Despite an annualized dividend distribution of more than $1 per share, the fund’s dividend yield is only 0.32%. However, investor interest with regards to this fund lies not in its income distributions but in its strong asset appreciation. Just over the past year, the total returns were nearly 140%. In addition to short term returns, the fund has also delivered total returns of 330% and 755% over the past three and five years, respectively.
The Direxion Daily Technology Bull and Bear 3X Shares seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse, of the performance of the Technology Select Sector Index (IXTTR). This fund and the other ETFs on this list have delivered tremendous returns over the past few years. However, before making any final decisions, interested investors must fully understand and accept the increased risk associated with leveraged investments like the several leveraged ETFs that are included on this list. Many risk-averse investors will probably find better investment choices among more traditional and unleveraged investment vehicles.
In addition to leverage, this ETF also allocated a significant share of its assets to just a couple of companies. Of the 71 individual holdings currently in the fund, Apple and Microsoft accounted for nearly 40% of the fund’s total assets on February 20, 2020. For comparison, Visa, Inc. (NYSE:V) is in third place and accounts for slightly more than 5% of total assets. All other holdings have less than a 4% share.
Apple and Microsoft have indeed performed extremely well over the past few years and have significantly impacted the fund’s strong total returns. While holdings change daily, investors must note that allocating a large share of assets into just a few stocks can be very risky if one or both of those stocks runs into trouble.
While the fund pays a marginal dividend of 0.15%, asset appreciation has delivered total returns of nearly 180% just over the trailing 12 months. Far from being only a short-term success example, the Direxion Daily Technology ETF also rewarded its shareholders with total returns of 420% over the past three years and nearly 760% over a five-year period.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.
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