If you are looking for a simple, effective way to invest in a wide range of sectors, industries, and themes, you might want to consider exchange-traded funds (ETFs). ETFs are collections of stocks, bonds, or other assets that track an index, a sector, or a certain theme like artificial intelligence, autonomous driving, or immuno-oncology. ETFs can help you diversify your portfolio and reduce your risk in a low-cost manner.
But with a galaxy's worth of ETFs to choose from, how do you know which ones are the best for your investment goals? Here are three ETFs that stand out as top buys for growth-oriented investors, and those looking to participate in a potentially long-winded recovery following last year's market-wide dip.
1. Ark Innovation
Ark Innovation ETF (ARKK 1.05%) is an actively managed fund that invests in companies that are disrupting their respective fields with innovative technologies and business models. The fund is led by Cathie Wood, a renowned investor who has a knack for spotting emerging trends and opportunities.
Some of the fund's top holdings include Tesla, Roku, Exact Sciences, and Shopify. After a challenging 2022 for all things tech, ARK Innovation has recovered in a big way in 2023, delivering a remarkable 53% return so far this year. Wood's flagship ETF, in fact, has dramatically outperformed the broader markets in 2023.
However, this tech-heavy fund also comes with some significant drawbacks. First, Wood's innovation-focused investing approach is high risk, which can result in some extreme levels of volatility. Second, Ark Innovation charges a relatively high management fee of 0.75%. That's not necessarily a deal-breaker, but it is something potential investors should consider carefully.
2. iShares Biotechnology ETF
iShares Biotechnology ETF (IBB 0.65%) is a passively managed fund that tracks the Nasdaq Biotechnology Index, which consists of more than 200 biotechnology and pharmaceutical companies. The fund offers exposure to a high-growth sector that is driven by innovation and research. Some of the fund's top holdings include Amgen, Moderna, Gilead Sciences, Biogen, and Vertex Pharmaceuticals. And its expense ratio of 0.43% is about average for its peer group.
The biotech specialty fund has delivered total returns in excess of 309% since its inception in 2001. However, the iShares Biotechnology Index can be an exceedingly volatile growth vehicle because it depends on investors who are willing to take risks to support innovation. During the 2022 bear market, for instance, the fund lost nearly 14% of its value. Prospective investors will want to keep the fund's volatile nature firmly in mind.
3. Vanguard 500 Index Fund
Vanguard 500 Index Fund (VOO 1.00%) is a passively managed fund that tracks the S&P 500 index. The fund offers exposure to a broad and diversified portfolio of stocks that span various sectors and industries. The fund's top five holdings, in order of position size, are Apple, Microsoft, Amazon, Nvidia, and Alphabet.
Like most funds within this family, the Vanguard 500 Index Fund comes with an extremely low net expense ratio of 0.03%. The fund has gained over 19% so far this year, and 426% since its inception. Overall, the Vanguard 500 Index Fund provides investors with a simple, low-cost way to gain exposure to a wide swath of blue chip companies.
