The S&P 500 stands as an emblem of investing prowess, with its legacy spanning over a century, albeit in varying forms (its contemporary rendition emerged in 1957), and delivering an average return of approximately 9%, factoring in dividends reinvested. This historical trajectory encompasses a tapestry of economic landscapes, including periods of prosperity, world conflicts, financial crises, and turbulent market conditions.
Despite facing numerous adversities, the American economy, epitomized by the performance of approximately 500 large-cap U.S. stocks, has demonstrated resilience and continued growth, albeit amidst undulating trajectories.
However, while the S&P 500 has proven to be a formidable investment over the long haul, there exist several investment avenues that have eclipsed its performance over shorter time frames. Year to date through April 23, the S&P 500 has posted a gain of 6.2%, albeit relinquishing earlier gains due to a tech-driven sell-off in April. Notwithstanding, a cohort of exchange-traded funds (ETFs) has surpassed its performance this year. Here's a deeper dive into two such ETFs:
1. Invesco Mid-Cap Momentum ETF: One distinguishing feature of the S&P 500 is the significant weighting of large-cap technology stocks, often referred to as the "Magnificent Seven," which collectively account for approximately 30% of the index's value. While this concentration can yield substantial gains during bullish phases, it also amplifies risk, as evidenced by the sharp decline witnessed in April.
For investors seeking exposure to recent market winners while circumventing the concentration risk posed by the "Magnificent Seven," the Invesco Mid-Cap Momentum ETF (NYSEMKT: XMMO) presents an attractive option. This ETF tracks the S&P Midcap 400 Momentum index, comprising 80 stocks from the S&P Midcap 400 index exhibiting the highest momentum scores, indicative of recent upward price movements.
With a focus on mid-cap stocks boasting market capitalizations ranging from $2 billion to $10 billion, the fund sidesteps exposure to the large-cap tech behemoths. Year to date through April 23, the ETF has surged by 22.3%, with a significant allocation to industrials, representing 39% of its holdings, followed by the information technology and consumer discretionary sectors at 15% and 14%, respectively.
2.Global X Defense Tech ETF: Sector-specific ETFs offer another avenue to outperform the S&P 500. While no single sector consistently outpaces the broad-market index, investing in sector ETFs can yield fruitful results. Against a backdrop of geopolitical tensions, defense stocks have witnessed an uptrend, propelling the Global X Defense Tech ETF (NYSEMKT: SHLD) into the spotlight.
This ETF has surged by 17.7% year to date and has outshone its counterparts in the defense sector. Tracking the Global X Defense Tech index, the ETF invests in companies poised to benefit from the adoption of defense technology, predominantly within the industrials sector. With holdings concentrated in defense stalwarts, such as BAE Systems, RTX Corp., and General Dynamics, the ETF positions investors to capitalize on heightened military spending amid global geopolitical uncertainties.
In essence, these ETFs offer avenues for investors to navigate beyond the traditional confines of the S&P 500, capitalizing on sector-specific trends and mitigating downside risks, thereby potentially enhancing portfolio performance and resilience.