Millions of investors have turned to exchange-traded funds to simplify their investing. ETFs have also made it far easier to pick particular niches of the market in which to invest, and that can lead to big payoffs when you choose the right sectors.

2017 was a good year for the stock market, with broad benchmarks posting gains of 20% or more on the year. Yet even when you narrow the extensive universe of ETFs to those funds with $1 billion or more in assets, five top performers managed to score gains of at least 60%. The trends that supported their big gains could well continue far into 2018.


Assets Under Management

Expense Ratio

2017 Return

VelocityShares Daily Inverse VIX Short-Term (NYSEMKT: XIV)

$1.16 billion



KraneShares CSI China Internet (KWEB 0.42%)

$1.36 billion



Global X Lithium (LIT 0.25%)

$1.13 billion



iShares U.S. Home Construction (ITB 0.61%)

$2.74 billion



Global X Robotics & Artificial Intelligence (BOTZ -0.97%)

$1.66 billion



Data source:

Betting against volatility

One of the biggest surprises during the bull market in recent years has been the lack of volatility. Ordinarily, even prolonged advances in the stock market have come with corrections peppered throughout, keeping investors on their toes and tempting some to take profits early, thereby missing out on further gains. Yet market participants have been quick to buy on even the slightest of dips, and that has kept downside volatility almost nonexistent.

The VelocityShares fund has prospered on that trend, with steady gains coming in the face of the market's constant defiance of those calling for a correction. Even a high expense ratio hasn't been able to dampen enthusiasm for the fund, and this year only amplified what has been extremely good long-term gains of more than 650% over the past five years. Any correction could bring massive losses to the fund, but in its absence, shareholders have reaped huge rewards.

Mosaic with white squares spelling ETF over yellow square background.

Image source: Getty Images.

Tech niches pay off

Three of the five top ETFs in 2017 had ties to the technology sector, although they took very different angles toward giving investors exposure. The KraneShares ETF focused on Chinese internet stocks, which rebounded sharply during the course of the year. From online gaming and internet search to e-commerce and social media, China reasserted itself as a major player on the global technology scene, and investors who stuck with the theme regained some of the ground they lost in 2016.

The Global X lithium fund largely owns stocks with an industrial focus, but the companies whose shares it owns are all aiming to make battery-powered technology a viable reality. Holdings include not only the companies that produce lithium but also the electronics manufacturers that incorporate lithium into their product lines. As interest in applications ranging from electric vehicles to solar power storage starts to ramp up, demand for lithium is likely to keep rising.

Robotics and artificial intelligence are key growth areas for tech companies of all sizes, and the robotics ETF from Global X aims to take advantage of their efforts. Holdings include chipmakers, surgical robotics specialists, and a host of electronics manufacturers aiming to make it easier for their clients to automate their operations. Artificial intelligence has already made large strides, and further development in the space is inevitable in 2018 and beyond.

An old-school winner

Finally, the surprise entrant on this list is the iShares home construction ETF. Homebuilding has had a good run for years, yet many believed that rising interest rates would inevitably lead to a cooling housing market. That didn't happen in 2017, and homebuilder stocks on the whole continued to benefit from their efforts to improve internal efficiency as well as strong demand in key real estate markets.

The iShares ETF takes a no-nonsense approach to the industry, picking a host of different homebuilders with various exposures to different geographical areas, price points for homes, and business models. As long as people can afford homes, homebuilding stocks could still see further gains.

Watch for continued success in 2018

The first week of 2018 has kept up the momentum that the stock market built in 2017. There's no assurance that the market can keep rising indefinitely, or that these particular ETF will duplicate their leading performance in the coming year. Yet until the trends supporting these funds change, you can expect many investors to keep betting on their continued success.