Beating the market and providing above-market income are two things that don’t always go together, but that’s the case with these three ETFs in 2024. These funds are beating out the just over 23% return of the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), which tracks the S&P 500 and provides dividend income above its 1.2% yield. I’ll use the Securities and Exchange Commission (SEC) 30-day Yield to show the level of income that the fund is expected to generate. It’s roughly comparable to the dividend yield on a stock.
I’ll also point out the fees charged to invest in these funds. Despite their outperformance this year, it is always extremely important to stay aware of the fees charged. A fund's returns can fluctuate a lot. This creates uncertainty about making or losing money. But fees are a certain expense. They must be paid, no matter what. Although they may seem small, fees add up over time and can significantly reduce the final return on investment. The fund’s expense ratio provides an accurate estimation of the fees that will be paid.
EINC Is Crushing the Market and Providing Hefty Income
The VanEck Energy Income ETF (NYSEARCA: EINC) is outperforming the market by nearly double digits, with over a 33% total return in 2024. The fund invests in a portfolio of 31 dividend-paying stocks in both the US and Canada. These stocks participate in the midstream part of the energy sector. This includes master limited partnerships (MLPs) and corporations that transport and store oil and gas. The fund provides a healthy dividend income with a 30-Day SEC Yield of 3.9%.
One interesting aspect of this fund is that it allows for an easy way to invest in MLPs. Investing directly in MLPs requires filing a K-1 tax form, adding a layer of tax reporting complexity that can cause headaches, time, and money.
One aspect of investing in midstream oil and gas companies that differentiates them somewhat from upstream and downstream companies is the nature of their contracts. They are mostly paid through long-term contracts. Customers pay to reserve transportation capacity in their pipeline. Whether the pipeline is actually used or what the price of oil or gas is, the payments are generally stable. This means that the firms can be much less affected by fluctuations in oil and gas prices, leading to more predictable cash flows over time. The fund’s expense ratio is 0.46%.
TDIV Specializes in Technology and Income
Next is the First Trust NASDAQ Technology Dividend Index Fund (NASDAQ: TDIV). The fund has provided a total return of 26% and includes a 1.6% 30-day SEC Yield that beats out SPY. It tracks the NASDAQ Technology Dividend Index, which includes 100 stocks in the technology and telecom sectors that pay a regular dividend. Due to this, it leaves out some of the biggest names in the NASDAQ 100 Index, because they don’t pay a significant and regular dividend.
Most notably, NVIDIA (NASDAQ: NVDA) is not a holding in the fund. However, despite this, it is also outperforming the NASDAQ 100. The Invesco QQQ Trust (NASDAQ: QQQ), which tracks that index, is up less than 22% this year. However, chip stocks still are the largest industry allocation in the fund, making up 37% of the exposure. Software companies come in second with 21%. The fund’s expense ratio is 0.50%.
FDVV’s Risk-Adjusted Returns Are Impressing
Last is the Fidelity High Income ETF (NYSEARCA: FDVV). The fund invests mostly in large US stocks and prioritizes those that pay a significant dividend. However, NVIDIA is a holding, with its nearly 0% dividend yield. The fund’s 30-day SEC Yield of 2.7% brings its total return to over 23% for the year, beating out SPY by less than a percentage point. However, a key aspect of this fund is the strong risk-return tradeoff it has generated recently. It has a Sharpe ratio of 2.40 over the 52 weeks ending Sept. 30, 2024.
A Sharpe ratio above one is an indicator that an investment is generating returns that are favorable compared to the level of risk it takes. FDVV’s Sharpe ratio, greatly over one, shows it has done extremely well in this regard. The fund is not only generating good overall returns, but also good risk-adjusted returns, something many hold in particularly high regard. The fund has the lowest expense ratio of the three on this list by far, coming in at 0.15%.
