Beating the S&P 500 shouldn’t be the benchmark for a sound investment, yet it’s the way many investors evaluate success.
A different way to frame portfolio diversification is to understand what each investment brings to an overall portfolio. The S&P 500 represents exactly one type of asset: Large-cap U.S. stocks.
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The S&P 500 has been one of the strongest-performing indexes over the long term, but you don’t need an S&P 500 index fund to own those stocks. Several other funds hold the same companies, giving you comparable exposure.
Beyond that, other asset classes will outperform at different points in the market cycle.
Non-U.S. Stocks Took the Lead in 2025
For example, in 2025, the iShares MSCI EAFE ETF (ticker: EFA) — an exchange-traded fund that tracks an index composed of large- and mid-cap developed market equities outside the U.S. and Canada — returned 31.5%. The iShares Core S&P 500 ETF (IVV) returned 17.8%.
Different assets can outpace the S&P 500 for stretches that last for months or even years. Sometimes those shifts in leadership happen gradually enough that most investors don’t even notice until it’s already in the rearview mirror.
Performance Across Various Market Cycles
Below are five ETFs that cover a wide range of strategies that can complement or replace the S&P 500. However, that doesn’t mean all of these are suitable for every investor.
“Rather than attempting to predict which ETF will outperform next, investors are often better served by building diversified portfolios that incorporate growth, value, income, momentum and innovation-oriented exposures,” says Brett Hina, managing partner at Cornerstone Private Wealth in Northfield, New Jersey.
“Successful asset allocation is usually less about finding the next winner and more about creating a portfolio that can perform across a variety of market environments,” he adds.
Here’s a rundown of these five ETFs:
— VanEck Semiconductor ETF (SMH)
— Schwab U.S. Dividend Equity ETF (SCHD)
— Invesco QQQ Trust (QQQ)
— Invesco S&P 500 Momentum ETF (SPMO)
— Vanguard Mega Cap Value ETF (MGV)
VanEck Semiconductor ETF (SMH)
This ETF tracks an index of companies that derive at least half their revenue from semiconductors or associated equipment.
At 0.35%, the expense ratio is higher than broad-market ETFs but not unreasonable for a single-sector fund.
Performance of sector funds like this depends on the health of their underlying industries. It’s riding high this year on the strength of artificial intelligence and data centers, but it underperformed the S&P 500 in 2022, when tech was slammed.
“Sector-specific funds like SMH rarely belong in the core of a standard retirement portfolio,” says Matthew Barnard, a certified financial planner and adjunct professor of financial planning at the University of Illinois Urbana-Champaign.
He notes that this fund is highly concentrated, with Nvidia Corp. (NVDA) constituting about 15% of fund assets.
“If an investor wants to hold it, it should strictly be treated as a satellite position — a small, speculative carve-out of their overall assets,” Barnard says.
Schwab U.S. Dividend Equity ETF (SCHD)
SCHD tracks the Dow Jones U.S. Dividend 100 Index, which requires a 10-year dividend payment history. Managers also use fundamental quality screens covering metrics such as cash-flow-to-debt ratio, return on equity and dividend growth rate.
Richard Siminou, founder of Siminou Wealth Management in New York, says this is one of the more thoughtfully constructed dividend ETFs available to investors.
“For clients approaching or in retirement, SCHD fits naturally into an income-oriented allocation,” he says. “I have incorporated dividend growth strategies like this for clients who need their portfolios to generate income without abandoning long-term growth potential.”
He adds that its low expense ratio of 0.06% is also attractive. Top holdings include Chevron Corp. (CVX), ConocoPhillips (COP), Merck & Co. Inc. (MRK), Coca-Cola Co. (KO) and Texas Instruments Inc. (TXN). This ETF’s 30-day SEC yield is 3.2%.
[READ: 7 Best Actively Managed ETFs to Buy Today]
Invesco QQQ Trust (QQQ)
This ETF measures performance of the Nasdaq-100, which holds 100 of the largest non-financial companies listed on the Nasdaq. In addition to excluding stocks from the financial sector, it also omits real estate investment trusts and special-purpose acquisition companies.
A late-2025 structural conversion from a unit investment trust to an open-end ETF slashed the expense ratio from 0.2% to 0.18%, which opened up greater operational flexibilities.
Current top holdings include Nvidia, Apple Inc. (AAPL) and Microsoft Corp. (MSFT). Over the 10-year period ending December 2025, QQQ returned about 22% per year on average, mostly due to the outperformance of tech stocks.
“When you invest in QQQ, you’re taking a more concentrated bet on technology, a sector that’s growth-heavy, innovative and meaningfully more volatile than a broad-market fund,” says Joseph Stabile, founder of Coast Financial in Austin, Texas.
“That’s not necessarily a bad thing, but you need to go in with eyes open,” he adds. “For investors with a long time horizon and the stomach for that volatility, it can make sense as part of a diversified allocation. For someone closer to retirement or with lower risk tolerance, that concentration can be a real liability in a downturn.”
Invesco S&P 500 Momentum ETF (SPMO)
SPMO tracks the S&P 500 Momentum Index, which includes about 100 stocks that have shown strong price gains over the past six and 12 months, adjusted for how volatile those moves were.
Its 0.13% expense ratio is low for a fund based on this type of strategy. This is another fund that’s dominated by technology; tech stocks account for about 55% of assets, followed by industrials and communication services.
“SPMO is interesting because momentum is one of the few investment factors that can make intuitive sense: Winners often keep winning longer than people expect,” says Stewart Willis, president of Asset Preservation Wealth & Tax in Phoenix.
“In a market where leadership has been narrow, a rules-based momentum ETF can help investors participate in strength without trying to pick every individual stock,” he adds. “The caution is that momentum can reverse quickly when market leadership changes, and investors who buy after a strong run need to understand that risk.”
Willis notes that SPMO can be a useful tactical allocation, but not something investors should confuse with plain-vanilla S&P 500 exposure.
Vanguard Mega Cap Value ETF (MGV)
MGV tracks the CRSP U.S. Mega Cap Value Index, which includes the cheaper half of the mega-cap stock universe. It relies on valuation metrics like price-to-book and price-to-earnings ratios; stocks are then weighted by market capitalization.
The 0.05% expense ratio ranks among the most competitive in the large-value category.
The fund’s top holdings include JPMorgan Chase & Co. (JPM), Berkshire Hathaway Inc. (BRK.B), Exxon Mobil Corp. (XOM), UnitedHealth Group Inc. (UNH) and Johnson & Johnson (JNJ), with financials and healthcare as the dominant sectors.
“MGV offers exposure to many of the largest and most established value-oriented companies in the U.S. market. In recent years, investors have largely favored growth stocks, but value stocks can become particularly attractive when economic uncertainty rises, interest rates remain elevated or market leadership broadens,” says Hina.
He adds that MGV can be a useful diversifier as it provides exposure to sectors that may not be as heavily represented in growth-focused portfolios.
“For long-term investors, maintaining exposure to both growth and value can help create a more balanced portfolio across market cycles,” Hina says.
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5 ETFs That Outperform the S&P 500 originally appeared on usnews.com
Update 06/05/26: This story was published at an earlier date and has been updated with new information.
