Today, on 5 December 2023, we will delve into ETFs, discuss their need, and explain how to invest in them. Most importantly, we will share the top 5 highest-yielding ETFs in 2023.

What is an ETF?

An ETF (exchange-traded fund) is an investment fund whose shares trade on a stock exchange in real-time, similar to the stocks of public companies. Investors can buy or sell these shares at the current market price at any point during a trading day.

ETFs can specialise in stocks of one particular sector or hold shares representing various industries. One of the most popular types is the index ETF, which replicates the structure of a chosen stock index, such as the S&P 500 or the Nasdaq 100. Therefore, when an investor buys stocks of an exchange-traded fund, they acquire not the shares of a specific corporation but a diversified asset portfolio instead.

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The purpose of ETFs

  • Portfolio diversification. ETFs provide access to a wide range of assets, enabling investors to spread risks across various investments
  • Liquidity. The securities of these funds traded on a stock exchange are highly liquid, allowing investors to buy or sell them at current market prices easily
  • Easy trading. Investors can buy or sell ETF stocks at any time during a trading day at the prevailing market price
  • Low commissions. ETFs typically incur lower commissions compared to other investment funds, resulting in cost savings for investors
  • Ample investment opportunities. ETFs allow investors to invest in diverse asset types, the entire market, or specific sectors, all without the need to build extensive investment portfolios, thereby reducing management costs
  • Convenience and transparency. Funds provide information about their portfolio composition, which makes the investment process more transparent and understandable for investors
  • Investment strategies. ETFs support a variety of investment strategies, including those aimed at long-term growth, generating dividend income, or focusing on specific themes and trends

Top 5 highest-yielding ETFs in 2023

According to Investopedia data presented in November 2023, the top 5 ETFs by return this year include the Communication Services Select Sector SPDR ETF (XLC), iShares Expanded Tech Sector ETF (IGM), Technology Select Sector SPDR ETF (XLK), iShares Expanded Tech-Software Sector ETF (IGV), and the iShares Expanded Tech-Software Sector ETF (IGV).

1. Communication Services Select Sector SPDR ETF – 35.8%

Communication Services Select Sector SPDR ETF*

  • Fund category: large-cap growth equities
  • Expense ratio: 0.1%
  • Inception date: 18 June 2018
  • Issuer: State Street Global Advisors

This ETF aims to replicate the S&P Communication Services Select Sector Index, which comprises stocks of US telecommunication, media, and entertainment companies in the S&P 500. The Communication Services Select Sector SPDR ETF’s basket consists of 22 holdings, including shares of companies such as Meta Platforms Inc. (NASDAQ: META), Alphabet Inc. (NASDAQ: GOOGL), and Netflix Inc. (NASDAQ: NFLX).

2. iShares Expanded Tech Sector ETF – 33.9%

iShares Expanded Tech Sector ETF*

  • Fund category: technologies equities
  • Expense ratio: 0.41%
  • Inception date: 13 March 2001
  • Issuer: BlackRock

The iShares Expanded Tech Sector ETF tracks the performance of the S&P North American Expanded Technology Sector Index. The fund offers extensive coverage of the North American technology sector, boasting a portfolio that includes stocks from 277 companies. Notable holdings comprise Microsoft Corporation (NASDAQ: MSFT), NVIDIA Corporation (NASDAQ: NVDA), and Apple Inc. (NASDAQ: AAPL).

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3. Technology Select Sector SPDR ETF – 32.7%

Technology Select Sector SPDR ETF*

  • Fund category: technology equities
  • Expense ratio: 0.1%
  • Inception date: 16 December 1998
  • Issuer: State Street Global Advisors

The Technology Select Sector SPDR ETF tracks the S&P Technology Select Sector Index, focusing on stocks of large-cap S&P 500 technology companies. The fund deliberately avoids smaller and potentially less stable technology companies, contributing to a reduction in overall volatility. The ETF's portfolio notably boasts securities from industry giants like Microsoft Corporation and Apple Inc.

4. iShares Expanded Tech-Software Sector ETF – 31.9%

iShares Expanded Tech-Software Sector ETF*

  • Fund category: technology equities
  • Expense ratio: 0.41%
  • Inception date: 10 July 2001
  • Issuer: BlackRock

The iShares Expanded Tech-Software Sector ETF aims to mirror the S&P North American Expanded Technology Software Index. This index basket comprises stocks of US and Canadian software companies. IGV’s portfolio includes 115 prominent representatives from the software sector, such as Microsoft Corporation and Adobe Systems Incorporated (NASDAQ: ADBE).

5. Schwab U.S. Large-Cap Growth ETF – 29.4%

Schwab U.S. Large-Cap Growth ETF*

  • Fund category: large-cap growth equities
  • Expense ratio: 0.04%
  • Inception date: 11 December 2009
  • Issuer: Charles Schwab

The Schwab U.S. Large-Cap Growth ETF tracks the performance of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. The fund’s basket includes over 250 holdings, including Apple Inc., Amazon.com Inc. (NASDAQ: AMZN), and Tesla Inc. (NASDAQ: TSLA).

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How to invest in ETFs

There are various strategies for trading exchange-traded funds. Investors can use them for speculative day trading, focus on mid-term outlook, or keep them in the portfolio as long-term investments. They can also be used for hedging.

The choice of a particular strategy depends on the investor’s individual trading preferences. Typically, fundamental analysis is employed for long-term investments, while technical analysis is preferred in case of short-term speculations.

To start ETF trading:

  1. Open an account with a brokerage firm that provides access to ETF trading.
  2. Deposit the required amount.
  3. Select and buy the desired ETF through a trading terminal. These stocks can be sold at any time.

RoboForex offers an opportunity to trade various ETFs through the R StocksTrader trading terminal.

Conclusion

The top 5 highest-yielding ETFs in 2023 include the Communication Services Select Sector SPDR ETF, iShares Expanded Tech Sector ETF, Technology Select Sector SPDR ETF, iShares Expanded Tech-Software Sector ETF, and the iShares Expanded Tech-Software Sector ETF.

They are popular financial instruments in the market, offering promising investment opportunities. While their returns are impressive, it is crucial to remember that high past performance does not guarantee future results.

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* – The charts featured in this article originate from the TradingView platform, renowned for its extensive set of tools designed for financial market analysis. Functioning as a user-friendly and advanced online market data charting service, TradingView allows users to perform technical analysis, explore financial data, and connect with fellow traders and investors. Furthermore, it offers valuable guidance on effectively understanding  how to read forex economic calendar, in addition to providing insights into various other financial assets.