*Disclaimer: This blog post is not a financial advice, nor connected with a recommendation to buy or sell shares, but an educational article for those who are interested to know about investing in the stock market, written by DisiCouture.com contributor and finance advisor
When you invest you want to make as much return as you can. It should be noted that winners in the market are made by making decisions which make you closer to your investment goal. Sometimes, that even means going in the opposite direction.
If you are looking for ETFs to give your portfolio a boost then don’t look further. An ETF is a diversified portfolio of shares. Just see it as a basket of shares of several companies packaged together. The plus point? You don’t have to research the stocks and you don’t have to actively maintain your portfolio. Because you don’t manage your portfolio yourself you pay a small fee to the manager of the ETF.
Globally there are thousands of ETFs. And some of them outperform the S&P 500 which is an index featuring the 500 leading U.S. publicly traded companies and is considered as an essential benchmark for the U.S. stock market. Outperforming the S&P 500 as an ETF is an achievement itself as not many ETFs can outperform the S&P 500. Below are 3 ETFs which have beaten the market in the past.
iShares Digitalization (DGTL)
What makes this ETF so interesting to have in your portfolio? As the name suggests, this ETF focuses on companies that derive the majority of their income from digital services. Some of the positions from this ETF include Adyen, Etsy, Mercadolibre, and Square. Since the pandemic in 2020 a lot of people are working from home which means that cloud computing and digitalization is on the rise.
This ETF has existed since 2016 and companies have been busy working on digitalization for a long time. The corona pandemic has only accelerated the process of digitalization.
The outlook for this ETF is, as mentioned, very good. Research firm Mordor Intelligence expects a CAGR of no less than 18.5% for the next five years. A disadvantage is that this ETF is also highly concentrated in the United States. The US accounts for a whopping 68% of the ETF.
However, this is the country where the highest returns are currently achieved on average. So there is a good chance that you as an investor should take this for granted. The PE ratio of this ETF is 37 which is just above that of the S&P 500. Compared to the S&P 500, DGTL achieves significantly higher earnings and revenue growth on average. At first glance, the ETF seems well positioned to outperform the market going forward. The ongoing charges of 0.4% are also not too bad. This ETF may be a bit riskier due to its lack of a compelling track record, but the bright prospects see DGTL earn a spot on this list.
VanEck Morningstar US Wide Moat (MOAT)
The VanEck Morningstar MOAT ETF focuses solely on companies that have strong competitive advantages. Morningstar’s function is to determine how strong a company’s competitive advantages are. Morningstar analysts look for large US companies that, in addition to their competitive advantages, also offer attractive valuations. The strategy of this active ETF is thus based on the strategy of master investor Warren Buffett.
The ETF is rebalanced quarterly. This is mainly based on valuation: when a company is no longer undervalued, its weight in the ETF will decrease. This means that this is an ETF that is actively managed and that naturally entails higher costs. The total cost of MOAT is 0.49% per year. The ETF has an average return of 18.96% per year. The S&P 500 has returned an average of 14.27% per year over the same period.
The Morningstar index has a longer track record, posting a cumulative return of over 530% since 2007 compared to the S&P 500’s 300%. At first glance, these high costs seem justified. As an investor, you don’t have to worry much about the quality or valuation of the companies you own. This combined with the proven strategy of Warren Buffett makes this ETF an interesting investment.
WisdomTree Artificial Intelligence (WTAI)
What do you think of when someone says artificial intelligence? Self-driving cars, smart thermostats, cybersecurity but also smart thermostats. That is exactly what this ETF focuses on. Some researchers expect AI to grow more than 40% per year in 2028 because different sectors such as automotive, healthcare, retail and even the financial sector are adopting AI. The structure of WTAI is built around each company’s exposure to AI. 10% of the ETF is made up of companies that add value to their product through AI, but do not consider it a core product or service. 40% of the portfolio belongs to companies developing the core elements for artificial intelligence.
Think, for example, of self-driving cars, databases and semiconductors. The other 50% belong to companies that design, create and/or integrate artificial intelligence in the form of a product or service. According to WisdomTree, these are the most attractive opportunities for AI investment as they build businesses that depend on the rapidly growing AI technology. Compared to MOAT, this ETF is more diversified. Where MOAT focuses exclusively on America, with WTAI you get a globally spread basket of AI companies.
Currently, America accounts for 56% of the ETF. Taiwan and Japan follow with 14% and 4.5% respectively. This ETF does not yet have significant results, as it was only established since the end of 2018. However, WTAI has managed to generate a large outperformance in this short period: 41% per year against 20% of the S&P 500. The fee of 0.4% also seems justified. The positive outlook of this ETF and the returns achieved so far ensure that WTAI earns a place in this list.
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*Disclaimer: This blog post is not a financial advice, nor connected with a recommendation to buy or sell shares, but an educational article for those who are interested to know about investing in the stock market, written by DisiCouture.com contributor and finance advisor.