Buying exchange-traded funds (ETFs) provides a terrific short cut for investors looking to diversify their holdings. The good news is that this doesn’t have to come at a steep price, as many top funds also deliver returns that smash the market average.
Take the following funds, for instance: iShares Core S&P 500 ETF (LSE:CSPX), Franklin FTSE India UCITS ETF (LSE:FLXI), and VanEck Semiconductor ETF (NASDAQ:SMH). Between them, they’ve delivered an average annual return of 19.5% since November 2020%.
Want to know what makes them stock market winners?
Tapping US shares
The iShares Core S&P 500 fund proved one of the best ETFs out there for reliably high returns. There are are several good reasons behind its strong performance.
The US stock market has comfortably outperformed overseas shares for decades, and I’m confident it will continue doing so given the eternal appeal of Wall Street shares. With holdings in hundreds of multinational companies, it isn’t dependent on one sector or region to drive returns, either.
I also like the ETF’s enormous exposure to high-growth tech shares. Businesses like Nvidia, Apple, and Microsoft comprise roughly 36% of its stock holdings.
This can lead to extra volatility during downturns. Yet, as we’ve seen, it can also deliver outsized returns as the digital revolution rolls on. The fund has delivered an average yearly return of 17.3% since November 2015.
Looking to Asia
Investing in emerging market shares is another attractive wealth-building opportunity to consider. One I like is the Franklin FTSE India ETF, which — as the name implies — provides targeted exposure to Asia’s fastest-growing major economy.
Over the last half a decade, the fund has delivered an average annual return of 13.4%. It’s done so by providing exposure to large- and mid-cap companies like HDFC Bank, Bharti Airtel, Hindustan Unilever, and Sun Pharmaceutical.
As this list shows, the fund is also well diversified by sector, protecting it from industry-specific weaknesses. A bright outlook for India’s economy suggests it could keep outperforming — latest data showed national GDP growth accelerate to 8.2% during Q3.
Be mindful, though, that confidence in emerging market equities can be volatile. This in turn can have an impact on funds like this from time to time.
A top tech fund
Thanks chiefly to the artificial intelligence (AI) boom, the VanEck Semiconductor ETF has delivered a staggering 27.9% average annual return over five years.
Companies like Nvidia, Taiwan Semiconductor Manufacturing Co, and Broadcom are enjoying rocketing sales as AI adoption takes off. Nvidia’s latest results showed data centre revenues leap 66% during Q3.
But the uses of their products are far and wide, from smartphones and robotics to cloud computing and electric vehicles. These markets are also all tipped for rapid growth during the next decade.
A focus on cyclical semiconductor shares leaves the fund vulnerable to economic downturns. But it still means less risk to investors’ cash than purchasing individual stocks. I think the ETF can keep delivering high double-digit returns.
