5 Best Top-Ranked ETFs of 2023 Set to Soar in 2024 (2024)

Wall Street wrapped up 2023 with big gains, driven by the artificial intelligence (AI) boom, easing inflation, a resilient economy and the prospect of lower interest rates. The buoyancy is likely to continue in 2024 as well (read: Top and Flop ETF Zones of 2023).

Given the bullish outlook, investors should bet on ETFs that were winners in 2023 and have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). These are VanEck Vectors Semiconductor ETF SMH, Invesco NASDAQ 100 ETF QQQM, Communication Services Select Sector SPDR Fund XLC, Vanguard Mega Cap Growth ETF MGK, and Vanguard Consumer Discretionary ETF VCR. These funds are likely to continue outperforming should the existing trends prevail.

The U.S. stock market has shown a strong rebound since the end of October, with the major indexes on a nine-week winning streak. The S&P 500 is just below all-time highs, rising more than 24% last year, while the Dow Jones Industrials closed at peak to end 2023. Historical data indicates that such strong annual performances often continue into the following year. This trend is attributed to factors like market momentum and solid fundamentals.

Analysis by LPL Research, dating back to 1950, reveals that years following a 20% or more gain in the S&P 500 usually see the index rise by an average of 10%, compared to an overall average annual return of 9.3%. Furthermore, such years often end on a positive note, with the market closing up 80% of the time versus 73% overall.

Historically, presidential election years have also been favorable for the stock market. The S&P 500 has seen gains in all 14 instances of a president seeking re-election, with an average total return of 15.5%, regardless of the election outcome.

With a Fed rate cut in the cards and an AI boom, the stock market could touch new highs in the coming months. The Fed's signal to cut 75 bps in interest rates this year is expected to provide more fuel to the broader market's momentum in 2024. That rate has been sitting at its highest level, between 5.25% and 5.50%, in two decades. Meanwhile, the craze for AI is expected to stay in 2024, with many experts believing that the AI journey for the market leaders has just begun, and more innovations in this field will unfold (read: Sector ETFs to Benefit From Fed Rate Cut Talks).

We have profiled the abovementioned ETFs in detail below:

VanEck Vectors Semiconductor ETF (SMH) – Up 72.7%

VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which measures the overall performance of companies involved in semiconductor production and equipment. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket.

VanEck Vectors Semiconductor ETF has managed assets worth $11.8 billion and charges 35 bps in annual fees and expenses. SMH is heavily traded with a volume of 7.6 million shares per day and has a Zacks ETF Rank #1 with a High risk outlook.

Invesco NASDAQ 100 ETF (QQQM) – Up 54.7%

Invesco NASDAQ 100 ETF is identical to QQQ, tracking the NASDAQ-100 Index. However, it has a lower annual fee of 15 bps. It holds 102 securities in its basket, with a higher concentration on the top two firms.

Invesco NASDAQ 100 ETF accumulated $19 billion in its asset base and trades in an average daily volume of 1.6 million shares. It has a Zacks ETF Rank #2.

Communication Services Select Sector SPDR Fund (XLC) – Up 52.7%

Communication Services Select Sector SPDR Fund offers exposure to companies from telecommunication services, media, entertainment and interactive media & services, and has accumulated $16.4 billion in its asset base. It follows the Communication Services Select Sector Index and holds 22 stocks in its basket. About 48% of the portfolio is allocated to interactive media & services, while entertainment and media round off the next two.

Communication Services Select Sector SPDR Fund charges 10 bps in annual fees and trades in an average daily volume of 6 million shares. It has a Zacks ETF Rank #2.

Vanguard Mega Cap Growth ETF (MGK) – Up 51.2%

Vanguard Mega Cap Growth ETF seeks to provide exposure to the largest-capitalization growth stocks in the United States. It tracks the CRSP US Mega Cap Growth Index and holds 88 securities in its basket, with key holdings in technology and consumer discretionary (read: Top Growth ETFs to Tap Declining Inflation Trends).

Vanguard Mega Cap Growth ETF charges 7 bps in annual fees and trades in a good volume of around 338,000 shares a day on average. The fund has AUM of $16.4 billion and a Zacks ETF Rank #2.

Vanguard Consumer Discretionary ETF (VCR) – Up 39.9%

Vanguard Consumer Discretionary ETF targets the consumer discretionary sector. It follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 311 stocks in its basket. In terms of industrial exposure, broadline retail, automobile manufacturers and restaurants occupy the top three spots.

Vanguard Consumer Discretionary ETF is the low-cost choice in the space, charging investors only 10 bps in annual fees while volume is good at nearly 97,000 shares a day. The fund has managed $5.3 billion in its asset base so far. Vanguard Consumer Discretionary ETF has a Zacks ETF Rank #1.