Key Points
The Invesco QQQ Trust holds the 100 top non-financial stocks listed on the Nasdaq.
The Vanguard Growth ETF holds 165 top growth stocks.
The Vanguard S&P 500 ETF has a long record of delivering attractive returns.
Many of the best ETFs have delivered strong returns over the past year. The Invesco QQQ Trust (NASDAQ: QQQ) and Vanguard Growth ETF (NYSEMKT: VUG) have gained more than 20% over the past 12 months, while the Vanguard S&P 500 ETF (NYSEMKT: VOO) has rallied more than 15%. Given these recent gains, investors might think they missed the boat.
However, the factors behind these gains aren't likely to fade anytime soon. As a result, these ETFs appear poised to continue their run in the coming years.
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A high-return fund
The Invesco QQQ Trust tracks the Nasdaq-100 Index, which comprises the 100 largest non-financial stocks listed on the Nasdaq stock exchange. These companies invest heavily in research and development (R&D) -- around 11% of their annual sales over the past three years -- to drive innovation. That has supported 10% or greater compound annual growth rates for revenue, earnings, and dividends over the past decade -- significantly outpacing S&P 500 Index companies, whose comparable annual growth rates are in the mid-single digits.
As a result, these Nasdaq-100 companies have delivered robust returns for the Invesco QQQ Trust. Over the past 10 years, the ETF has gained nearly 450%, compared with the more than 250% return of the S&P 500 over the same period. At that rate, the fund has grown a $10,000 investment made a decade ago into more than $54,500 today.
The fund's past performance doesn't guarantee similar returns in the future. However, with these companies' ongoing focus on R&D, they are well positioned to continue developing new distributive technologies, such as artificial intelligence, quantum computing, and robotics. This next wave of innovation could drive strong returns for the Invesco QQQ Trust in the decade ahead.
More growth ahead
The Vanguard Growth ETF tracks the CRSP US Large Cap Growth Index, which is focused on the country's largest growth stocks. It currently holds more stocks than the Invesco QQQ Trust, at 165. Its holdings include top growth companies listed on the Nasdaq and New York Stock Exchanges, including financial stocks. As a result, it provides investors with even greater exposure to the country's fastest-growing large companies.
This fund has also produced strong returns over the years:
Fund
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Since inception (1/26/04)
|
VUG
|
24.5%
|
22.5%
|
16.6%
|
16.3%
|
11.9%
|
Data source: Vanguard.
A $10,000 investment made at its inception more than 20 years ago would have grown into over $93,000 today.
This fund remains in an excellent position to continue delivering strong returns. Like the Invesco QQQ Trust, its holdings continue to invest in innovation, including new financial technologies, which should support above-average growth rates and returns for investors.
Old reliable
The Vanguard S&P 500 ETF is the largest ETF in the world by assets under management (AUM), at more than $700 billion. Investors entrust this Vanguard fund with their capital because of its exceptional record of delivering returns in line with the S&P 500, which tracks the 500 largest publicly traded companies in the United States.
The S&P 500 is the gold-standard benchmark for investors. While many investors aim to beat the S&P 500's returns, the Vanguard S&P 500 ETF enables investors to join in on the index's returns. Over the past 50 years, the average stock market return as measured by the S&P 500 has been 10% annually. At that rate, the ETF can double an investor's money about every seven years.
While the S&P 500's greater diversification across other sectors and inclusion of slower-growing companies will probably lead it to deliver lower returns compared with QQQ and VUG over the long term, the fund has a lower risk profile. As such, the S&P 500, and therefore this fund, is less likely to decline as much as QQQ and VUG during a stock market selloff. This tradeoff makes the fund an ideal long-term investment to complement those funds.
Great ETFs to buy and hold long term
The Invesco QQQ Trust, Vanguard Growth ETF, and Vanguard S&P 500 ETF are among the top ETFs to buy. They enable investors to participate in the growth of the economy. Given the ongoing expansion driven by innovation, these are great ETFs to buy and hold long-term, even after their runup over the past year.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Growth ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.