3 ETFs That Have Soared Past the S&P 500 in the Last 10 Years

The S&P 500 is a good, safe way to invest in the stock market. But there are many exchange-traded funds (ETFs) to choose from that can provide you with solid diversification and that have the potential to generate market-beating returns.

Three exchange-traded funds (ETFs) that have drastically outperformed the S&P 500 in the last 10 years are the Invesco QQQ Trust (QQQ 1.03%), the iShares U.S. Technology ETF (IYW 1.11%), and the Technology Select Sector SPDR Fund (XLK 1.27%). Here’s a closer look at their returns, why they have done so well, and if they are good options for your portfolio today.

Invesco QQQ Trust: 442% 10-year return

In the past decade, the Invesco QQQ Trust has generated total returns (which include dividends) of 442%, which is far higher than the S&P 500’s gains of around 238% over the same period.

What makes the Invesco QQQ Trust special for investors is its focus on the top growth stocks in the world. The fund tracks the Nasdaq-100 index, which contains the top non-financial stocks on the Nasdaq Stock Market. These are growth-oriented stocks and include the best and brightest growth stocks that you can find. There can be a bit of volatility, especially if there’s a bad year for tech stocks. But by and large, by focusing on top growth stocks such as Nvidia, Apple, Microsoft, and many other behemoths in the industry, odds are, investors will earn a much better return than by just investing in the S&P 500.

While this ETF isn’t a slam dunk to always outperform the markets, it’s definitely one of the more likely candidates to do so. And it has some great diversification outside of tech, which accounts for just over 51% of its total holdings. Communication services stocks account for 15% of the fund’s weight, followed by consumer discretionary stocks at 13%, and healthcare and consumer staples each make up over 6% of the ETF’s holdings.

iShares U.S. Technology ETF: 553%

An ETF that has generated even greater total returns than the Invesco QQQ Trust in the past 10 years is the iShares U.S. Technology ETF. This ETF focuses on U.S. tech stocks and it includes 140 holdings.

One of the reasons this ETF has outperformed the Invesco fund is because it is a bit heavier on top, with around 45% of its weight devoted to its top three holdings — Microsoft, Apple, and Nvidia. By comparison, the Invesco fund has just 25% allocated to those growth stocks. In good times, when those stocks are performing well, the U.S. Technology ETF is more likely to do better given its heavier weighting. But on the flip side, that also makes the ETF more vulnerable in the event there is a sell-off among those stocks.

There’s still some excellent diversification with the fund as the U.S. Technology ETF possesses more overall holdings than the Invesco fund, but investors need to be aware of the risks and caveats that come with the ETF. If you’re bullish on these big three tech stocks, then perhaps you’re OK with a lot of concentration among them. But if you prefer greater diversification, a more balanced option such as the Invesco fund could be optimal. And while there are more holdings in this fund, the focus is still largely within tech, as opposed to the Invesco fund, which looks at top Nasdaq stocks and includes industries outside of tech.

Technology Select Sector SPDR Fund: 549%

Investors would have earned similar returns with the Technology Select Sector SPDR ETF as they would have with the U.S. Technology fund over the past 10 years. This is another top-heavy fund, but there is a bit of a difference from the previous ETF as Microsoft and Nvidia account for 42% of the holdings and Apple represents just 4.8%. Due to concentration rules, the ETF avoids having the top three stocks account for more than 50% of its holdings but at the same time it allows for a single stock to hold more than 20% of the overall portfolio. And in the case of Microsoft and Nvidia, two stocks take up significantly large positions in the fund. Over time, depending on their respective market caps, the top two stocks in the fund can change, however.

There are just 67 holdings in the ETF, making this the least diverse option of the three funds on this list. Despite its name containing the word “technology,” however, that doesn’t mean every major tech stock is going to be in the ETF. It ultimately depends on how stocks are classified. Alphabet, for instance, is considered a communications stock and thus isn’t included within this fund — although it is in both the Invesco fund and the U.S. Technology ETF.

While the Technology Select fund does include top tech stocks from the S&P 500 index, it has the potential to be a more volatile fund than the others on this list due to a strong concentration at the top. But when tech stocks are doing well, particularly the heavy hitters, it’s highly likely to outperform the markets.