3 ETFs That Continue to Beat the S&P 500

Beating the S&P 500 over the long run has become the yardstick for measuring truly outstanding investors. Most investors fail to beat this index, including professional investors and hedge funds. Over a 10-year period, around 90% of investors fail to beat the S&P 500’s returns.

This does not mean that the S&P 500 has been the best place to put your money in recent decades. Times have changed, and the U.S. economy has been increasingly focused on services and the tech sector. These booming sectors have led to other tech-heavy indexes to outperform the S&P 500 over the past few decades, and quite significantly so.

If you believe this tech boom is set to continue in the decades ahead, you might be able to outperform the S&P 500 by investing in ETFs with solid exposure to these high-growth names. AI has unlocked more room for these tech companies to grow into, and do so quite profitably. If you think a downturn is ahead, I’d be more cautious. Higher-growth stocks tend to decline significantly in recessions.

Below, I’ve compiled a list of three ETFs that have historically outperformed the S&P 500.

VanEck Semiconductor ETF (SMH)

VanEck Semiconductor ETF (NASDAQ:SMH) has outperformed the S&P 500 even before the AI boom in the past three years. The semiconductor industry was already seeing chip shortages and a data center boom leading up to the release of ChatGPT. And with investments pouring into AI, the outperformance has been supercharged.

SMH is up over 255% in the past five years, compared to the SPY’s 95.8% gain in the same timeframe. The catch is that the drawdowns have been more severe due to the semiconductor industry’s cyclicality. Investors who’ve bought during those downturns are now laughing their way to the bank.

Considering current trends, the semiconductor boom looks poised to continue. Demand is still running hot, and big-cap cloud computing companies are spending hundreds of billions to expand their data centers even more. 2025 CapEx from Big Tech companies is at $350 billion, much of which will go towards the hardware needed for AI and data centers.

Year-to-date, SMH has returned 17.1%. The top holdings are Nvidia (NASDAQ:NVDA) at 20.68%, Taiwan Semiconductor (NYSE:TSM) at 10.79%, Broadcom (NASDAQ:AVGO) at 8.94%, and AMD (NASDAQ:AMD) at 5.25%. Management fees are relatively high at 0.35%, meaning you pay $35 per $10,000 invested.

Technology Select Sector SPDR Fund (XLK)

Technology Select Sector SPDR Fund (NYSEARCA:XLK) is an ETF that tracks the performance of the Technology Select Sector Index. This index tracks the tech sector within the S&P 500 and gives you exposure to some of the fastest-growing companies on Wall Street today.

Most of the stock market’s growth in the past two decades has been driven by the tech sector. That trend is unlikely to change anytime soon, as their dominance has only been increasing. As such, ETFs concentrating here have outperformed the S&P 500 as a whole.

XLK is up 137% over the past five years, though it has slightly trailed the S&P 500 in a one-year timeframe.

It is quite attractive if you want a vehicle to boost your returns vs. the S&P 500 without paying higher fees. The expense ratio here is just 0.08%. Much like SMH, the biggest holding here is Nvidia, with a 14.7% weight. You get exposure beyond just chip stocks. Microsoft (NASDAQ:MSFT) constitutes 13.9% of holdings, Apple (NASDAQ:AAPL) at 11.82%, AVGO at 4.81%, followed by Oracle (NYSE:ORCL) at 3.75%. It is passively managed, so these holdings will change as investor preferences shift and the S&P 500 rebalances.

Invesco QQQ Trust (QQQ)

Invesco QQQ (NASDAQ:QQQ) is by far the most well-known high-growth ETF. It gives you exposure to the Nasdaq-100 Index, tracking the 100 largest non-financial companies on the Nasdaq.

This ETF has outperformed the S&P 500 very consistently, especially during bullish cycles. The QQQ has gained 110% over the past five years, though it is slightly trailing the S&P 500 in the past year. Year-to-date, it is still ahead by over 2%.

The ETF is poised to outperform as long as the stock market continues its tech-centered growth. In the past five years, the annualized return for the Nasdaq-100 has been 18.1% vs. the S&P 500’s 15.9%. For the past 10 years, the annualized return is 17.6%, vs. the S&P 500’s 12.9%.

If you bought and held the Nasdaq-100 a decade ago, it would’ve returned 406.1% compared to the S&P 500 returning 235.4%. The holdings here overlap with the other two ETFs for obvious reasons, but exposure to individual stocks is below double digits. The highest exposure is to NVDA, with a 9.26% weight.

The expense ratio here is 0.2%.

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