Exchange-Traded Funds (ETFs) are popular investment vehicles by retail and institutional investors. The sector has grown rapidly in recent years as these investors move from actively-managed funds to passive funds that have low management fees. There are more than 1,300 ETFs in the US with more than $3.5 billion in assets under management. In this report, we will look at the best five ETFs of the future you should consider investing in today.
Invesco QQQ Trust (QQQ)
Technology has been the best-performing sector in the United States in recent years. That is because technology is now embedded in everything that we do. For example, e-commerce, cloud computing, autonomous cars, artificial intelligence, and gaming are some of the fastest-growing industries in the US.
Started in 1999 by Invesco, QQQ is one of the biggest ETF in the United States with more than $127 billion in assets under management and a weighted market cap of more than $677 billion. It is also the second best-performing ETFs in the US in the past 15 years and the second most traded ETF in the country.
QQQ’s outperformance is mostly because of the companies that it invests in. The firm invests only in the biggest technology companies in the US. In fact, it only invests in the firms in the Nasdaq-100, which is also the best-performing index in the US. Its biggest constituent companies are Apple, Amazon, and Microsoft. Other key firms in the index are Tesla, Nvidia, Google, Adobe, and Facebook.
Because of the firms, it invests in, QQQ is not cheap. It has a price-to-earnings ratio of 47 and a price-to-book ratio of 12.8. The chart below shows that QQQ tracks the Nasdaq 100 index and has outperformed the S&P 500 index.
QQQ has outperformed the S&P 500 index
ARK Innovation ETF (ARKK)
ARK Innovation is an ETF offered by ARK Invest, one of the fastest-growing fund providers in the United States. The goal of this fund is to invest in companies that have a dominant role in the fastest-growing sectors in the world. The fund invests only in companies in the DNA Technologies, fintech innovation, industrial innovation, and next-generation internet.
Unlike QQQ that has 100 constituent companies, ARKK has only 47 total companies. Among the biggest ones in the index are Tesla, Invitae, Square, Roku, and Proto Labs, among others. In total, the fund has net assets of more than $4.8 billion and a weighted market cap of more than $33 billion. It has an expense ratio of just 0.75%.
In the past five years, ARKK has outperformed the Dow Jones and the S&P 500 because of how fast its constituent firms have grown. For example, Tesla’s shares have grown by more than 670% in the past five years, and is currently the biggest automaker in the world. Square, another key constituent, has grown by 1,130% in the past five years and is now one of the biggest finance firms in the US.
ARKK has outperformed key US indices
First Trust Cloud Computing ETF (SKYY)
Cloud computing is changing how companies operate. The industry allows companies to move their workloads to the cloud, which boosts their efficiency and cuts their overall costs. According to Gartner, the public cloud industry will generate more than $350 billion in revenue in 2022. Another study expects that the industry will reach more than $831 billion in 2025.
Therefore, the goal of the First Trust Cloud Computing ETF is to invest in the biggest players in cloud computing. This includes companies that provide cloud software, IT services, IT hardware, communication, and healthcare technology.
By investing in this ETF, you will be investing in some of the best cloud companies in the world. The biggest constituent companies in the ETF are Amazon, which is the market leader with its AWS product. Other companies in the ETF are Microsoft, Alibaba, Fastly, Oracle, and Google, among others.
The SKYY ETF has more than $4 billion in assets and an expense ratio of just 0.60%. The chart below shows that SKYY has outperformed key indices in the past five years.
SKYY has outperformed key indices
ARK Autonomous Technology & Robotics ETF (ARKQ)
The world is going through a significant change in key industries. In the automotive sector, the industry is quickly transitioning to electric cars, making Tesla the biggest automaker in the world. Similarly, the role of robotics is increasing as companies seek to cut costs and boost their productivity. The same is true with 3D printing, which is being adopted by most manufacturers. Separately, the space industry is expected to grow rapidly, with companies like SpaceX, Blue Origin, and Virgin Galactic.
The ARK Autonomous Technology & Robotics ETF (ARK) seeks to take advantage of these trends by investing in companies in the industry. The ETF has net assets of more than $317 million and an expense ratio of 0.75%. Among the biggest companies in the ETF are Tesla, Materialise, 2U Inc, Xilinx, and Proto Labs. It also has some traditional companies like Caterpillar, Deere, and Morgan Stanley that are actively taking advantage of these trends.
ARKQ has outperformed key indices
Global X FinTech ETF (FINX)
The financial technology industry is also among the fastest-growing areas in the United States. Today, relatively new companies have grown to become the biggest companies in the country. For example, PayPal, the market cap of PayPal has grown to more than $200 billion. That makes it the third-biggest company in finance in the US after JP Morgan and Visa. Square, which is barely 15 years old, has become bigger than some iconic banks.
Therefore, the Global X Fintech is among the best ETFs to invest in if you want to take part in the fintech sector. The firm invests in the leading companies in the sector, with the biggest holdings being Square, Adyen, PayPal, Intuit, AfterPay, and Stoneco. Since its inception in 2016, the fund has grown by more than 135% and outperformed the Nasdaq 100 and the S&P 500.
FINX has outperformed key indices
ETFs are an excellent way to invest in the financial market, especially if you have a long-term horizon. In this report, we have looked at the best ETFs to invest in. These ETFs have something in common. They are all weighted towards technology companies because we believe that people will continue seeking the growth it provides. We have avoided industries like energy, retail, and banking because we expect these sectors will grow at a slower pace than these tech firms.