ETFs
Top-ranked ETFs that outperformed the market in the first half
Wall Street ended the first half of the year on a high. The S&P 500 index gained 14.5% while the Dow Jones Industrial Average advanced 3.8%. The Nasdaq Composite Index outperformed, climbing 18.1%. The enthusiasm for artificial intelligence (AI), bets on rate cuts and strong corporate earnings growth were the main catalysts for the stock rally and will continue to do so for the rest of the year. Wall Street analysts have become more bullish on stocks, citing these factors as a strong combination of factors.
In the current scenario, investors should bet on ETFs that were winners in the first half of the year and have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). VanEck Vectors Semiconductor Exchange Traded Fund (ETF) SMH, iShares Broader Technology Sector ETF IGM, SPDR Portfolio S&P 500 Growth Exchange Traded Fund SPY, iShares Russell Top 200 Growth Exchange Traded Fund (ETF) IWY and Invesco ETF AI and Next Generation Software IGPT.
The Magnificent Seven were the biggest growth drivers for the S&P 500 and Nasdaq. About 60% of the gains came from mega-cap tech companies: NVIDIA (NVDA), Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), and Apple (AAPL). NVIDIA alone accounted for 31% of the market’s gain in the first half of the year. With this latest surge, NVIDIA, Apple, and Microsoft are in the race to become the world’s most valuable company, reaching a market cap of $4 trillion on the back of growing enthusiasm for AI capabilities. This tech-driven momentum is likely to continue through at least the summer (read: Tech Sector Leads First-Half Rally: Top 5 ETFs).
At the last FOMC meeting, U.S. policymakers forecast just one rate cut this year and four cuts by 2025. The Fed changed the wording of its statement, noting “modest further progress toward the committee’s 2 percent inflation target.” The statement had previously noted a “lack” of further progress. Low rates reduce the cost of borrowing, which is often needed to finance business expansion, thereby boosting economic growth. Low rates generally reduce the appeal of fixed-income investments like bonds, prompting investors to seek higher yields in stock markets.
Second-quarter earnings are expected to be strong. According to the Zacks Earnings Trends report, second-quarter earnings for the S&P 500 will be up 8.3% from the same period last year, driven by a 4.6% revenue increase. This is the strongest pace of quarterly earnings growth since the 9.9% growth in the first quarter of 2022 and would follow earnings growth of 6.7% on revenue gains of 3.2% in the first quarter of 2024.
Moreover, a strong first half for the S&P 500 index historically bodes well for the rest of the year. Since the early 1950s, when the index climbed more than 10% through June, it has risen an average of about 10% in the second half, according to data compiled by Bloomberg. However, high valuations, the U.S. presidential election in November and uncertainty about the path of interest rate cuts will weigh on stocks in the second half of this year.
We have introduced the above mentioned ETFs in detail below:
VanEck Vectors Semiconductor ETF (SMH) – Up 49.3%
The VanEck Vectors Semiconductor ETF provides exposure to companies involved in semiconductor manufacturing and equipment. It tracks the MVIS US Listed Semiconductor 25 Index and holds 26 stocks in its basket. The VanEck Vectors Semiconductor ETF has $22.3 billion in assets under management and charges 35 bps in annual fees and expenses. SMH trades in an average daily volume of 7 million shares and is ranked #1 in the Zacks ETF.
iShares Expanded Tech Sector ETF (IGM) – Up 27.2%
The iShares Expanded Tech Sector ETF provides broad exposure to the technology sector and technology-related companies in the communication services and consumer discretionary sectors. It tracks the S&P North American Expanded Technology Sector Index, holding 282 stocks in its basket. The iShares Expanded Tech Sector ETF has $5 billion in assets under management and charges 41 bps in annual fees. It trades in an average daily volume of 397,000 shares and is ranked #1 in the Zacks ETF Rank.
SPDR Portfolio S&P 500 Growth ETF (SPYG) – Up 24.4%
The SPDR Portfolio S&P 500 Growth ETF tracks the S&P 500 Growth Index, holding 231 stocks in its basket with a heavy concentration in the top three companies. It has a large exposure to the information technology sector with a 51.2% allocation, while communication services and consumer discretionary round out the next two spots. The SPDR Portfolio S&P 500 Growth ETF has accumulated $28.9 billion in its asset base and charges investors 4 bps in annual fees. Volume is good, with 2.3 million shares traded per day on average. SPYG has a Zacks ETF Rank #2 (read: Growth ETFs Shine in H1: What’s in Store for H2?).
iShares Russell Top 200 Growth ETF (IWY) – Up 24%
The iShares Russell Top 200 Growth ETF provides exposure to large U.S. companies that are expected to grow at an above-average rate relative to the market. It tracks the Russell Top 200 Growth Index and holds 106 stocks in its basket. The iShares Russell Top 200 Growth ETF holds key holdings in information technology, communications, and consumer discretionary, with double-digit exposure to each of these sectors. The iShares Russell Top 200 Growth ETF has accumulated $12 billion in assets and trades in an average daily volume of 344,000 shares. It has an expense ratio of 0.20% and is ranked #2 in the Zacks ETF Rank.
Invesco AI and Next-Generation Software ETF (IGPT) – Up 22.8%
Invesco AI and Next Gen Software ETF groups companies with significant exposure to technologies or products that contribute to the future development of software through direct revenues. It holds 100 stocks in its basket and charges 60 bps of fees per year to investors. Invesco AI and Next Gen Software ETF has accumulated $382 million in its asset base and trades on average at a volume of 73,000 shares per day. It is ranked #1 by Zacks ETF (read: Can NVIDIA’s AI Chip Dominance Continue?).
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VanEck Semiconductor ETF (SMH): ETF Research Reports
iShares Expanded Tech Sector (IGM) ETF: ETF Research Reports
iShares Russell Top 200 Growth ETF (IWY): ETF Research Reports
SPDR Portfolio S&P 500 Growth ETF (SPYG): ETF Research Reports
Invesco AI and Next Gen Software ETF (IGPT): ETF Research Reports