The last 10 years have been favorable for stocks. The S&P 500 has risen at a 15% 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?
Several events have caused investors anxiety during the last ten years. 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.
- The COVID-19 pandemic in 2020.
Global central banks responded to the COVID pandemic and the Great Recession in 2008 with massive asset purchase programs (also known as quantitative easing) and near-zero interest rates. As such, interest rates have been historically low during these ten years.
The low-interest-rate milieu has favored stocks of growth companies offering the promise of generating positive free cash flow after several years.
Conversely, the low-interest rate milieu has been unfavorable to value stocks.
Excluding dividends, the S&P 500 has risen 3.3-fold implying a 12.5% compound annual return. The annualized rate of return increases to 14.8% with dividends.
According to FactSet, S&P 500 company earnings have risen 1.8 fold from $92.57 a share to $167.49 a share during the ten years ending on June 30, 2021.
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 3.18% in June 2011 to 1.45% in June 2021.
In this milieu, the best performing ETFs in several categories have outpaced the S&P 500.
So, what are the best performing ETFs in the last 10 years?
Best Performing ETFs of Last 10 Years: Miscellaneous Category
Trading-leveraged equity ETFs in the miscellaneous category made the most of rising stock prices over the past ten years.
The ProShares UltraPro QQQ (TQQQ), which seeks daily investment results that correspond to three times the daily performance of the Nasdaq-100 Index, is the best performing ETF of the last ten years with a 53.3% 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, and to a lesser extent, health care and consumer discretionary sectors, have fared well.
The iShares Semiconductor ETF (SOXX) claims top honors among non-leveraged ETFs with a compound annual return of 24.9%.
The Invesco S&P SmallCap Health Care ETF (PSCH) and the iShares U.S. Home Construction ETF (ITB) have gained at annualized rates of 19.7% and 19.1%, respectively. They claim the top spot among health care and consumer discretionary sector ETFs.
In comparison, the iShares Core S&P 500 ETF (IVV) and the SPDR S&P 500 ETF (SPY) tracking the S&P 500 have gained at annualized rates of 14.8% and 14.7%, respectively.
Learn more: How to consistently choose the best sector ETF
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 21.3%, 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 relatively out-of-favor investing styles.
The large-cap blend-styled Invesco S&P 500 Top 50 ETF (XLG) and mid-cap growth styled iShares Morningstar Mid-Cap Growth ETF (IMCG) have gained at annualized rates of 15.7% and 14.9%, respectively, to trounce ETFs tracking the S&P 500.
Notably, not a single value-styled ETF has been able to beat ETFs tracking the S&P 500. The best performing value ETF is Invesco S&P SmallCap 600 Revenue ETF (RWJ), a small cap-value ETF with a 14.5% annualized return. Invesco BuyBack Achievers ETF (PKW), with an annualized return of 14.3%, is the best performing large-cap value ETF.
Best Performing ETFs of Last 10 Years: International Equity
International stocks have generally lagged U. S. stocks during the past ten years.
The iShares MSCI EAFE ETF (EFA) that tracks the popular MSCI EAFE foreign stock benchmark has gained just 5.8% annualized during this period.
The rising U. S. dollar, for one, has been a headwind for international stocks.
According to Yahoo Finance, the U. S. Dollar Index (DXY) has risen from 86.02 to 97.39 over the past 10 years. The U. S. Dollar Index measures the value of the dollar relative to a basket of major foreign currencies.
Gaining 12.9% annualized, the Invesco China Technology ETF (CQQQ) 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 ten years seldom works for the next ten years.
With that said, the QQQ Trust ETF (QQQ) and the iShares Semiconductor ETF (SOXX) have decent odds of topping the return charts in 10 years.
As things stand now, value stocks have lagged growth stocks by a wide margin and have a significant opportunity to catch up.
From a global perspective, the U. S. has been the dominant market for the past few years. Foreign stocks, particularly in Europe and Emerging Asia, are attractively valued compared to their growth prospects.
As for trends shaping the world, the United Nations lists climate change, the aging population, and the emergence of digital technologies among the megatrends shaping the world.
These megatrends can provide enduring tailwinds for businesses involved in clean energy, health care, and information technology.
AlphaProfit sees the following ETFs have the potential to be among the top-performing ETFs over the next ten years.
Value stocks: Vanguard Russell 2000 Value Index Fund ETF Shares (VTWV)
Foreign markets: SPDR EURO STOXX 50 ETF (FEZ) and iShares Asia 50 ETF (AIA)
Clean energy: iShares Global Clean Energy ETF (ICLN) and Global X Lithium & Battery Tech ETF (LIT)
Health care: iShares U.S. Medical Devices ETF (IHI) and SPDR S&P Biotech ETF (XBI)
Information technology: First Trust Technology AlphaDEX Fund (FXL)
One of the above ETFs may well be the best performing ETF after 10 years.
Sector ETF model portfolios from AlphaProfit
Performance of AlphaProfit's ETF model portfolios
How AlphaProfit helps you invest in the best sector ETF consistently
How AlphaProfit's investment strategy minimizes your risk
How AlphaProfit keeps your fees and expenses low
AlphaProfit's free and premium investment newsletters