For investors with a longer time horizon, the long-term return of an exchange-traded fund, or ETF, is more important than its short-term performance. Thus, when evaluating ETFs, the focus tends to be on longer performance periods, such as five or 10 years, rather than shorter periods of three months, six months, one year or even three years.
Though past performance is no guarantee of future results, investors can use the 10-year return of ETFs as a way to identify ETFs with the capacity to produce long-term returns.
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Since market prices are more likely to reflect intrinsic value over the long term, better 10-year returns can signify that an ETF contains better-quality companies that may be poised for stable or even improved performance in the future.
So let’s take a look at the overall best ETF, the best stock ETF and the best international stock ETF with the highest 10-year annualized return:
— ETF with the highest 10-year return.
— Stock ETF with the highest 10-year return.
— International stock ETF with the highest 10-year return.
— Non-sector-specific stock ETF with the highest 10-year return.
[What Is the Best Dividend ETF to Own?]
ETF With the Highest 10-Year Return
At the time of writing in mid-February, Grayscale Bitcoin Trust ETF (ticker: GBTC) is the ETF with the highest 10-year return. The ETF has produced an annualized daily return of 78.74% (by net asset value) over the past 10 years.
GBTC is a fund that allows investors to gain exposure to Bitcoin (BTC) without directly holding the world’s most popular cryptocurrency. The trust purchases BTC and investors can buy shares in the company to gain exposure to the underlying BTC holdings.
GBTC debuted in 2013, but was only available to institutional and accredited investors at first. It was launched as a spot Bitcoin ETF available to retail investors in January 2024.
The incredible performance of this ETF is understandable given how Bitcoin has performed over the past 10 years. BTC’s 10-year annualized return is 82.03% as of Feb. 19, as measured by the S&P Bitcoin Index. This performance can be attributed to several factors, including growing demand from institutional and retail investors, more media coverage and the fear of missing out (FOMO), among others.
Stock ETF With the Highest 10-Year Return
Because not as many people are interested in cryptocurrency in general or BTC in particular, and ETFs are primarily a way to invest in traditional assets like stocks and bonds, let’s consider the stock ETF with the highest 10-year return.
VanEck Semiconductor ETF (SMH) was the stock ETF with the highest 10-year return at the end of the year. It has produced a 10-year annualized return of 26.12% as of Feb. 19.
As the name implies, SMH is an industry-specific ETF focusing on the semiconductor industry. Its top three holdings are Nvidia Corp. (NVDA), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) and Broadcom Inc. (AVGO).
Given how companies in this industry have performed in recent years, the reason behind SMH’s outstanding performance is a no-brainer. The rise of digital technologies like artificial intelligence, cloud computing, electric vehicles and the Internet of Things has led to improved demand for semiconductors, and companies in the industry have risen to the occasion.
International Stock ETF With the Highest 10-Year Return
For investors looking to diversify their portfolios with international exposure, a look at the international stock ETF with the highest 10-year returns can be helpful.
With a 10-year annualized return of 19.37% as of Feb. 19, iShares Global Tech ETF (IXN) takes the top spot in this category.
IXN invests in international tech stocks, with roughly 80% of the fund’s money invested in U.S. stocks. Its top five holdings are Apple Inc. (AAPL), Nvidia, Microsoft Corp. (MSFT), Broadcom and Taiwan Semiconductor Manufacturing.
Like SMH, this ETF has benefited from the astounding performance of the U.S. tech sector, especially the semiconductor industry, which constitutes about 40% of the fund.
Non-Sector-Specific Stock ETF With the Highest 10-Year Return
All the stock ETFs we have considered have tilted toward the technology sector in general and the semiconductor industry in particular.
You might find it beneficial to consider ETFs that are not especially focused on the tech sector and have also done well over the past 10 years.
This is particularly useful if you are trying to focus on broader ETFs that diversify across sectors. Yes, the tech sector has done well over the past 10 years, but who knows what the future holds for it? As they always say, past performance does not guarantee future performance.
In this regard, iShares Russell Top 200 Growth ETF (IWY) had the highest 10-year return at the end of 2024. Its 10-year annualized return is 17.75% as of Feb. 19.
IWY tracks the performance of large-cap U.S. stocks with above-average earnings growth rates. It currently holds 106 stocks, and information technology (51%), consumer discretionary (15%), communication services (16%), health care (6%) and financial services (6%) make up the top five sectors by exposure.
Also, though all of the BATMMAAN stocks are represented in the top 10 holdings, those weightings are lower than in many of the top ETFs, and there is a health care stock, Eli Lilly and Co. (LLY).
Takeaway
While long-term returns are important, they don’t tell the whole story. Other factors like an ETF’s risk profile, expense ratio, liquidity, tracking error and diversification level, among others, are also key to investor decision-making. Thus, the analysis above should not be used in isolation. Historical returns should be treated as one factor among many.
Rather, prioritize risk-adjusted returns and also consider your risk tolerance, risk capacity and financial goals.
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What ETF Has the Highest 10-Year Return? originally appeared on usnews.com
