Exchange-traded funds (ETFs) vary in size and structure. Some are simple and passive -- mirroring the performance of a broader index like the S&P 500 or Nasdaq Composite. Others are complex and active -- targeting a specific theme or industry.
Investing $3,000 evenly across the Vanguard Russell 1000 Growth ETF (VONG -1.47%), the Roundhill Generative AI and Technology ETF (CHAT -1.36%), and the VanEck Semiconductor ETF (SMH -1.01%) would incur just $12 in annual fees. Here's why all three ETFs are beating the S&P 500 and Nasdaq Composite so far this year, and why they could all have more room to run.
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A simple and effective way to invest in growth stocks
Daniel Foelber (Vanguard Russell 1000 Growth ETF): Vanguard has 86 ETFs, but only five of them have outperformed both the S&P 500 and the Nasdaq Composite so far in 2024.
There's a common through line with these ETFs -- which is that their top three holdings are all Microsoft, Apple, and Nvidia. Given the massive run-up in Nvidia so far this year, any ETF with significant exposure is probably doing quite well. Yet what makes these funds such solid long-term investments are their inexpensive fee structure and diversification.
The Russell 1000 Growth ETF is my favorite of the five, but by a slim margin, given its similarities to the other funds. It picks top growth stocks from the Russell 1000 index, whereas the S&P 500 Growth ETF uses the S&P 500, and the Vanguard Mega Cap Growth ETF focuses strictly on the largest names.
The Vanguard Growth ETF is another worthy choice. But there are some intricacies between which stocks Vanguard puts in the Growth ETF versus the Vanguard Value ETF that exclude names like Broadcom and Oracle. The Vanguard Information Technology ETF mirrors the tech sector's performance. Thanks to big gains from megacap companies, tech has been the best-performing sector this year.
The Vanguard Russell 1000 Growth ETF is a good choice for investors looking for a simple, easy-to-understand ETF. With 440 holdings, it has small weightings in companies that are big, but fall outside the S&P 500. However, the allocation is still dominated by megacap growth stocks.
The fund could be a good choice for investors who want exposure to the broader market but through a growth lens and don't want to be limited to the largest names. The ETF has a 0.08% expense ratio, or a mere $0.80 annual fee for a $1,000 investment.
An ETF for the surging generative AI market
Scott Levine (Roundhill Generative AI & Technology ETF): Enthusiasm for artificial intelligence (AI) stocks shows no signs of slowing down. It seems warranted, too, since AI is becoming increasingly present in our lives -- especially generative AI.
Unlike just a couple of years ago, nowadays, people consistently engage online with chatbots to accomplish various tasks. For investors, this presents a tremendous growth opportunity -- one that they can access through the Roundhill Generative AI & Technology ETF, which Roundhill Investments, the manager of the ETF, characterizes as the "the world's first Generative AI ETF."
If anecdotal experiences haven't compelled you to consider a generative AI investment, consider the market research. Bloomberg Intelligence projects that the generative AI market will skyrocket to $1.3 trillion in 2032 from a mere $40 billion in 2022.
This makes the Roundhill Generative AI & Technology ETF so appealing, and it's not as if the market hasn't noticed. The ETF has soared about 22% since the start of the year, outpacing the S&P 500 and Nasdaq Composite.
Of the ETF's 54 holdings, Nvidia, a powerhouse in the field of generative AI, is the largest position with an 8.6% weighting. Microsoft and Alphabet represent the second- and third-largest positions with weightings of 6.4% and 5.7%, respectively. The Roundhill Generative AI & Technology ETF has a 0.75% expense ratio.
A diversitied ETF for the semiconductor sector
Lee Samaha (VanEck Semiconductor ETF): It's not easy to pick winners in the semiconductor sector. For every Taiwan Semiconductor Manufacturing (up 68% over the last year), there's an Intel (down 17% over the same period). While some people enjoy and excel at picking winners in a sector, others are looking for a cost-effective way to get broad exposure to the industry.
That's where the VanEck ETF comes in. With an expense ratio of 0.35% (implying expenses of just $3.50 if you invest $1,000), this ETF gives broad-based exposure to the industry. It aims to track the performance of the U.S.-listed Semiconductor 25 Index. As such, it's not actively managed and includes chip producers like Taiwan Semiconductor and companies providing semiconductor production equipment like ASML and Applied Materials.
The semiconductor industry is usually seen as being highly cyclical. When growth starts to pick up, customers start ordering chips ahead of a production ramp-up to meet increased orders. Similarly, they cancel orders quickly in a slowdown.
In addition to the traditional sources of demand, such as the consumer electronics industry, the rising use of cutting-edge technology across most industries in the economy supports long-term growth in semiconductors. The AI-fueled demand for high-performance computing chips is a boon to an industry in recovery mode. That's why this ETF is up 53% so far in 2024 alone, and its bull run might not be over just yet.