The last 10 years have been favorable for stocks. The S&P 500 has risen at a 13% annualized rate. The best performing ETFs in specific categories have done much better. What are the best performing ETFs of the last 10 years? What are likely to be the best performing ETFs in the next 10 years?
At the beginning of 2009, the S&P 500 stood at 903. The U. S. economy was in the midst of the Great Recession.
As the economy improved, stock prices bottomed in March 2009 and embarked on a multi-year rally.
Stocks were rattled by a few events during the 10-year period. They include:
- S&P’s downgrade of U. S. debt rating in 2010.
- European sovereign debt crisis in 2010 and 2011.
- Slowing global economic growth in 2015.
- The trade war between the U. S. and China in 2018.
- Rising interest rates in 2018.
These setbacks have, however, been mild in the big picture.
Excluding dividends, the S&P 500 has risen 3.2-fold implying a 12% compound annual return.
According to FactSet, S&P 500 company earnings have risen from 2.7-fold from $61.95 a share in 2009 to a forecast of $167.87 a share in 2019.
The decline in interest rates has allowed the price/earnings ratio to increase, helping stock prices rise more than earnings.
According to Macrotrends, the yield on the 10-year Treasury bond has dropped from an average of 3.3% in 2009 to an average of 2.5% in 2019.
In this milieu, the best performing ETFs in several categories have been able to outpace the S&P 500.
So, what are the best performing ETFs in the last 10 years?
Best Performing ETFs of Last 10 Years: Alternative Category
Leveraged equity ETFs in the alternative category made the most of rising stock prices over the past 10 years.
The Direxion Daily Technology Bull 3X Shares (TECL) which seeks daily investment results of 300% of the performance of the Technology Select Sector Index is the best performing ETF of the last 10 years with a 41.1% compound annual return.
Best Performing ETFs of Last 10 Years: Sector Equity
Among non-leveraged ETFs, several in the sector equity category have beaten the broad market. The ETFs that focus on specific industries in the technology, health care, and consumer discretionary sectors have fared best.
The First Trust Dow Jones Internet Index Fund (FDN) claims top honors among non-leveraged ETFs with a compound annual return of 22.1%.
The First Trust NYSE Arca Biotechnology Index Fund ETF (FBT) and the Consumer Discretionary Select Sector SPDR Fund (XLY) have gained at annualized rates of 20.7% and 18.7%, respectively to rank best among health care and consumer discretionary sector ETFs.
For comparison purposes, the iShares Core S&P 500 ETF (IVV) and the SPDR S&P 500 ETF (SPY) that track the S&P 500, have gained at a 13.8% annualized rate.
Best Performing ETFs of Last 10 Years: U. S. Equity
Over the past 10-years, the U. S. stock market has been most favorable for large-cap growth style investors.
The large-cap growth styled Invesco QQQ Trust ETF (QQQ) with an annualized return of 18.4% claims the top spot for the best performing ETF in the U. S. equity category.
Selected broad market ETFs have fared quite well despite operating in out-of-favor investing styles.
The large-value styled Invesco S&P 500 Pure Value ETF (RPV) and the large-blend styled Invesco BuyBack Achievers ETF (PKW) have gained 15.5% and 14.4% annualized to trounce ETFs tracking the S&P 500.
Best Performing ETFs of Last 10 Years: International Equity
International stocks have generally lagged U. S. stocks during the past 10 years.
The iShares MSCI EAFE ETF (EFA) that tracks the popular MSCI EAFE foreign stock benchmark has gained just 6.1% annualized during this period.
The rising U. S. dollar, for one, has been a headwind for international stocks.
According to Macrotrends, the Federal Reserve’s trade-weighted U. S. dollar index has averaged 100.82 in 2019, up from an average of 91.17 in 2009.
Gaining 13.7% annualized, the iShares MSCI Thailand ETF (THD) is the best performing ETF in the international equity category.
Best Performing ETFs for the Next 10 Years
In financial markets, what worked for the past 10 years seldom works for the next 10 years.
With that said, the First Trust Dow Jones Internet Index Fund (FDN) and the First Trust NYSE Arca Biotechnology Index Fund ETF (FBT) have decent odds of topping the return charts in 10 years.
It also helps to look at the weaker performers of the past 10 years to get a handle on possible turnarounds.
Excluding inverse ETFs, energy and agricultural ETFs and ETNs feature prominently in the losers list.
ETFs investing in value, as well as small-cap stocks in the U. S. and foreign stocks in general, have been among the weaker performers.
While energy ETFs can appeal to contrarians, investors owning ETFs that invest in U. S. value stocks, U. S. small-cap stocks or foreign stocks are likely to earn superior returns in the next 10 years.
The best performing ETF in the next 10 years is likely to emerge from one of these categories.