One of the best things about exchange-traded funds (ETFs) is that they offer investors a passive play on the markets. By nature they are index funds, and we all know about index funds beating active management over time.
But just because ETFs are generally passive investments and hug various market indexes, doesn’t mean that all of them are “boring.” There are some that are downright exciting.
And with these exciting ETFs, we have the best chance of doubling or tripling our returns versus much more staid fair — like the Vanguard 500 Index Fund (NYSEARCA:VOO).
Not that there is anything wrong with a core ETF like the VOO. But by adding a touch of “growth” to a portfolio, we can do wonders for its overall, long-term returns. ETFs make adding that weighting to growth pretty easy. With one or two tickers, we can boost our portfolios accordingly.
And speaking of those tickers, here are five ETFs that have the potential to double or triple your returns with their heavy growth mandates.
ETFs That Can Triple Your Returns: iShares Exponential Technologies ETF (XT)
Expenses: 0.47%, or $47 annually per $10,000 invested
Technology and growth investing have always gone hand in hand. After all, themes such as cloud computing, gene editing and robotics are pretty exciting endeavors. They beg for high returns.
The problem is that for every high-technology hit, there are plenty of fizzles. Remember when business-to-business internet stocks were all the rage?
Which is why the iShares Exponential Technologies ETF (NYSEARCA:XT) could be a great addition to a growth portfolio.
XT tracks the Morningstar Exponential Technologies Index — which measures of all sorts of firms engaging in game-changing technologies. You get biotech, robotics, renewable energy, nanotechnology and more, all under one easy-to-trade-and-own ticker. There’s no need to go out and buy the individual companies or cobble together a few sub-sector ETFs. You get 192 of them with XT.
But high-tech doesn’t just mean small firms like Hologic, Inc. (NASDAQ:HOLX). There is plenty of large-cap muscle as well.
The real key for XT is that it is equal weighted. That means the small fries and large-cap firms do equal lifting in terms of the ETF’s returns.
XT is only about a year old, so it doesn’t have any long-term performance data to go by, but the ETF’s promise is great — and so is its expense ratio. XT only charges 0.47% to own.
ETFs That Can Triple Your Returns: Guggenheim S&P 500 Equal Weight ETF (RSP)
That simple solution of just equal-weighting an already existing index could be the easiest way to double or triple your returns over the long haul.
The problem is with most bread-n-butter indexes, is that they’re market-cap weighted. Take the S&P 500 for example — Microsoft Corporation (NASDAQ:MSFT) makes up about 2.5% of the index. While that may not seem like a big deal, consider that News Corp (NASDAQ:NWS) only makes up about 0.0081% of the index.
The issue is that MSFT can pull or push the index more than NWS can. By equal weighting the index, these smaller — *cough* faster-growing — firms have a better chance to actually matter in the index.
The Guggenheim S&P 500 Equal Weight ETF (NYSEARCA:RSP) does the work for you and equal-weights the S&P 500.
That simple tweak of the index has resulted in larger returns over the longer haul. Over the last 10 years, RSP has managed to return about 8.7% annually. That’s more than 1 percentage point per year than the regular S&P 500. This even accounts for the ETF’s 0.4% expenses ratio.
That extra “oomph” is enough to make RSP a contender to triple your money over the long haul.
ETFs That Can Triple Your Returns: First Trust Dorsey Wright Focus 5 ETF (FV)
Momentum and technical investing is what growth is all about — riding stocks or sectors up, and then quickly getting out for killer profits. The problem is that most of us downright stink at trading or using momentum successfully. So why not let ETFs do it for us. And the one that does is the First Trust Dorsey Wright Focus 5 ETF (NYSEARCA:FV)
FV is sub-managed by Dorsey, Wright & Associates (DWA). Dorsey basically pioneered the idea of momentum and relative-strength investing. Through their propriety screening methods, the firm chooses sectors and industries that have that best chance for price appreciation. This index of sectors is rebalanced twice a month.
FV will bet on these sectors by buying other First Trust-sponsored ETFs. As the name implies, FV will only hold five of the strongest ETFs picked through DWA’s ranking system. It’s the closest thing to day-trading that regular retail investors can get their hands on.
In its two-year life span, the $3.1 billion ETFs returns have been mixed. However, DWA has had a long-term history of outperformance with their model and spate managed account portfolios. Investors may need to give this one a little time before the doubles and triples come rolling in.
Expenses for FV run at 0.89%.
ETFs That Can Triple Your Returns: PowerShares Dynamic Lg. Cap Growth (ETF) (PWB)
Perhaps the easiest way to add growth to a portfolio is go long the “growth” style of investing. That is, bet on stocks that are growing their earnings/revenues at faster rates than the overall market or industries.
However, most “growth” ETFs fall flat. That’s because there’s plenty of overlap with their “value” twins. Sometimes, they can hold the same stocks in each index, depending on the issuer.
The PowerShares Dynamic Lg. Cap Growth (ETF) (NYSEARCA:PWB) seeks to eliminate that problem.
PWB is considered a smart-beta index and uses a rigorous 10-factor style isolation process in order to separate stocks out into their actual investment style and size universes. With this fund, you are actually going to get growth stocks.
That isolation of real “growth” has helped the ETF put up big return numbers. Over the last five years, PWB has managed to return over 15.3% annually. That’s compared to 13.6% per year for the traditional Russell 1000 Growth Index. Top holdings include Amazon.com, Inc. (NASDAQ:AMZN) and Eli Lilly and Co (NYSE:LLY)
For that isolation of growth and the potential to triple your returns, PWB charges just 0.58% in expenses.
ETFs That Can Triple Your Returns: Direxion Large Cap Bull 3X Shares (ETF) (SPXL)
Want to instantly triple your returns? Then you need to reach for a leveraged ETF.
The Direxion Large Cap Bull 3X Shares (ETF) (NYSEARCA:SPXL) uses options, futures contracts and swap agreements to provide three times the daily movement of the S&P 500 index. The key word in that sentence is “daily.” After one day, the ETF basically resets and percentage gain — or drop — is now exacerbated based on the new open/close. That can work for or against investors.
However, in periods of low volatility, leverage ETFs actually might be a good thing as the reset doesn’t succumb to so-called volatility decay. We’re currently in one of these periods now. As a result, SPXL has managed to crush the regular S&P 500 over the last five years. In fact, it’s managed to post 30.8% annual returns over that time.
SXPL costs 0.96% in expenses and its holdings include Apple Inc. (NASDAQ:AAPL) and Microsoft.
Leveraged ETFs aren’t for the faint of heart, but if you know how to use them, then they could be the key to doubling or tripling a portfolio’s return.
As of this writing, Aaron Levitt was long XT and FV.