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The S&P 500 is the most well-known benchmark, and buying an ETF focused on this index could have yielded good long-term returns. However, investors can boost their returns by testing the waters and putting their money into ETFs that show more promise.
The weakness of indices like the S&P 500 is that they contain a bunch of declining companies, but a few winners prop up the benchmark. The right ETFs trim unnecessary holdings and give investors more exposure to long-term winners. These three funds are poised to outperform the S&P 500 in the long run.
CoinShares Bitcoin Mining ETF
The CoinShares Bitcoin Mining ETF (NASDAQ:WGMI) gives investors exposure to crypto miners, many of which have pivoted to AI infrastructure. This trend is a relatively new one, but it is gaining a lot of momentum. The fund is up by more than 20% year-to-date and has more than doubled over the past year. Those gains make up for its 0.75% expense ratio.
WGMI only has 23 stocks, with IREN (NASDAQ:IREN) and Cipher Mining (NASDAQ:CIFR) making up almost 40% of its total assets. These companies have been landing lucrative big tech deals as the need for AI data centers becomes more apparent. While AI chips have been the bottleneck for years, tech companies now need AI data centers and power to actually use those chips. That’s where IREN, Cipher Mining, and other pivoting crypto miners deliver.
The heavy concentration in the sector means you will have to buy shares in an additional ETF for true diversification. However, you won’t find any of these companies in the S&P 500 right now. By the time any of these companies gets added to the S&P 500, they will have extended their rallies even further.
Roundhill Magnificent Seven ETF
The Roundhill Magnificent Seven ETF (BATS:MAGS) exclusively holds the Magnificent Seven stocks and rebalances every quarter to ensure equal exposure to each tech company. These seven stocks have powered the S&P 500 to new highs and have helped the MAGS ETF outperform the famed benchmark.
The argument for MAGS is to focus on the best stocks in the S&P 500 instead of being stuck with 500 companies that aren’t all carrying their weight. That formula has worked well, with MAGS outperforming the S&P 500 over the past year and since its inception.
The Roundhill Magnificent Seven ETF only has a 0.29% expense ratio and comes with an 1.82% SEC yield. All Magnificent Seven stocks are trillion-dollar companies.
VanEck Semiconductor ETF
The VanEck Semiconductor ETF (NASDAQ:SMH) prioritizes semiconductor stocks that have benefited from strong AI demand. These companies are the bedrock of the AI buildout and stand to produce attractive gains as tech companies continue to pour capital into the industry.
The fund has a 0.35% expense ratio and an annualized 33.2% return over the past decade. Nvidia (NASDAQ:NVDA) makes up almost 20% of the fund, with Taiwan Semiconductor Manufacturing (NYSE:TSM) and Broadcom (NASDAQ:AVGO) as the two next largest holdings.
This fund only has 25 stocks and is heavily concentrated in semiconductors, so investors will need a broader ETF for additional diversification. However, this fund has a long history of outperforming the S&P 500 and looks poised to continue its winning streak.