Will this year’s top-performing stock ETFs stay hot in ’24?
In movies, it was Everything Everywhere Everything at once. In music, “Just Like That” by Bonnie Raitt. In sports, Spain won the FIFA Women’s World Cup.
This year’s pop culture winners included many surprises.
The same can be said for US stocks.
Stocks have shrugged off rampant inflation and rising interest rates to produce what many consider a surprisingly strong year. Barring an appearance from Scrooge, the S&P 500 will end 2023 with a total return of at least 20%. It would mark the fourth time in the last five years that the index has posted high double-digit percentage gains. Robust to say the least given the recent mix of macroeconomic and geopolitical headwinds.
If the capital markets hosted an Oscars-style awards show, there would be many worthy candidates. Mega-cap tech, a group that typically underperforms in a rising rate environment, is crushing it. Growth stocks, which usually lag when inflation is high, outperform by a lot. There are also a host of emerging investment topics such as artificial intelligence (AI), cyber security and digital currencies.
Which brings up an important question for investors heading into 2024: will this year’s disconnect between economic conditions and asset class outperformance continue? Or will we see a more normalized investment setup where value and defensive sectors attract more buyers?
The good news is that if there is a clear market rotation, it won’t happen overnight. This means that shareholders in these three top-performing exchange-traded funds (ETFs) will have a chance to secure gains – and go on to be the potential trophy winners of 2024.
#1 – ARKK
This year has been sweet revenge for ARK Innovation ETF (NYSEARCA: ARKK ) manager Cathie Wood. The widely followed fund is up 55% year to date after suffering a 67% decline in 2022. Thanks to a drastic shift in market sentiment toward high-risk tech names, last year’s worst stocks have become some of this year’s. best
ARKK’s top Coinbase Global holding soars 300% amid optimism surrounding upcoming Bitcoin ETF launch. Roku, the fund’s second-largest position, is up 140% on growing subscribers and an anticipated rebound in digital advertising demand (boosted by the election cycle). Meta Platforms, Palantir Technologies and Shopify also more than doubled in 2023.
The encouraging news for Aunt Cathie loyalists is that most ARKK shares are still trading well below their all-time highs. At 10.6% of the ETF, Coinbase will be a big driver of future returns. The crypto trading platform (and former $400 stock) is one of the most polarizing names on Wall Street with seven analysts calling it a buy and seven a sell. Street sentiment around Roku is more bullish. What is looming, however, is that both Coinbase and Roku are at a significant disadvantage based on their respective consensus price targets.
#2 – FBCG
The Fidelity Blue Chip Growth ETF (BATS: FBCG ) was in the right place at the right time. Up 53% so far this year, the fund has benefited from increased investor appetite for well-known tech leaders — and some unlikely heroes. While mega-caps like NVIDIA and Meta Platforms were major return contributors, so were companies like Abercrombie & Fitch, DraftKings and Uber Technologies. The ETF also got a big boost from owning Moonlake Immunotherapeutics, a mid-cap biotech that’s up more than 400% year-to-date.
Whether FBCG can top in 2024 will depend a lot on Microsoft, Apple, NVIDIA and Amazon. Together, these stocks account for 40% of the portfolio compared to about 20% in the S&P 500. Although the fund is well diversified with about 150 holdings, it is quite top-heavy. Prospective investors should also be aware that the fund is not cheap – the expense ratio is 0.59%. There are less expensive and less concentrated ways to ride the growth train.
#3 – VCAR
The Simplify Volt RoboCar Disruption and Tech ETF (NYSEARCA: VCAR ) is a thinly traded thematic ETF, but one that has performed extremely well. It invests in leading disruptive companies in the autonomous vehicle space, such as Advanced Micro Devices, Tesla and Lemonade. What is also unique about the fund is that it “enhances” its highest conviction bets with an option overlay strategy. It’s an approach that has served shareholders well, with the ETF up 54% this year.
The expense ratio is high at 0.99%, but VCAR has a surprisingly high dividend yield (3.3%), which makes that easy to swallow. The story of a self-driving car was accompanied by a lot of hype – but also a lot of doubt. This week, Barron called the space a burst bubble. Robotaxis may be the future, but after a huge rise this year, its biggest proponents will have a lot to prove in 2024. Trading well below its peak of $19.43, VCAR is a high-risk play in a nascent, regulation-challenged industry. .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.