5 Sector ETFs That Beat the Market in 2023 (2024)

It has been a robust year for the U.S. stock market. The Dow Jones Industrial Average and the S&P 500 Index are set to conclude 2023 with impressive gains of 13% and 24%, respectively. The optimism that the Fed is done with interest rate hikes has led to a strong rally in recent months.

Leading the charge, the Nasdaq Composite Index soared 44%, benefiting significantly from the resurgence in mega-cap technology stocks and the fervor surrounding artificial intelligence. This performance marks Nasdaq's biggest one-year gain since 2003.

As the gains were broad-based and well spread out across various segments, we have highlighted five best-performing ETFs from different sectors. These include Valkyrie Bitcoin Miners ETF WGMI, iShares U.S. Home Construction ETF ITB, Sprott Uranium Miners ETF URNM, Vanguard Communication Services ETF VOX and Fidelity MSCI Consumer Discretionary Index ETF FDIS.

A significant portion of the gains can be attributed to the strong performance of a group of large-cap stocks, referred to as the "Magnificent Seven." This group, comprising Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms and Tesla, has jumped about 75% in 2023. The perceived safety of these investments, their size, competitive advantages and the potential of emerging technologies like artificial intelligence have been the key factors driving their performances (read: 5 Best-Performing Technology ETFs of 2023).

The economy has withstood the worst of the Fed’s policy tightening and is now expected to enjoy a major policy shift. Federal Reserve Chair Jerome Powell, in the latest meeting, hinted at three rate cuts of 75 bps for the next year as inflation is easing and the economy is holding up better.

Further, recent indicators suggest that economic activity has been expanding at a moderate pace, buoyed by robust consumer spending, strong job gains and a low unemployment rate. Corporate earnings have also improved. The S&P 500 index witnessed earnings growth in the third quarter after three back-to-back quarters of decline.

We have profiled the abovementioned ETFs in detail below:

Valkyrie Bitcoin Miners ETF (WGMI) – Up 399.6%

Bitcoin has exhibited a remarkable performance this year, outpacing other assets like global stocks and gold this year. The world's largest cryptocurrency started 2023 just above $16,000 and climbed to a 12-month high of $45,000 in early December. The surge came on the back of broad enthusiasm about U.S. interest rate cuts and the imminent regulatory approval for Bitcoin ETFs (read: Bitcoin ETFs Set to Explode in 2024 After a Marvelous 2023).

Valkyrie Bitcoin Miners ETF is an actively managed ETF that invests at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenues or profits from bitcoin mining operations and/or from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining. Valkyrie Bitcoin Miners ETF holds 22 stocks in its basket with a double-digit concentration on the top five firms. It has amassed $66.3 million in its asset base while trading in an average daily volume of 296,000 shares. WGMI charges 75 bps in annual fees.

iShares U.S. Home Construction ETF (ITB) – Up 70.1%

The U.S. housing sector has been showing improvements as a decline in mortgage rates prompted an increase in prospective buyers, leading to an uptick in sales. Mortgage rates fell below 7% for the first time since August last week and are hovering at the lowest level since July, reigniting some life in the housing market. iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index (read: Homebuilder ETFs 2024 Prospects Appear Bright).

With AUM of $2.5 billion, iShares U.S. Home Construction ETF holds a basket of 46 stocks with a heavy concentration on the top two firms. The product charges 40 bps in annual fees and trades in a heavy volume of around 3 million shares a day on average. iShares U.S. Home Construction ETF has a Zacks ETF Rank #3 (Hold).

Sprott Uranium Miners ETF (URNM) – Up 59.3%

The uranium miners have built up strong momentum this year, underpinned by the global push to consider nuclear energy as an eco-friendly alternative to coal and gas. Uranium, used mainly in nuclear power plants, is one of the cleanest ways to produce electricity. Sprott Uranium Miners ETF provides exposure to companies involved in the mining, exploration, development and production of uranium, as well as companies that hold physical uranium or other non-mining assets. It follows the North Shore Global Uranium Mining Index and charges investors 83 bps in annual fees.

Sprott Uranium Miners ETF holds 37 stocks in its basket and has AUM of $1.7 billion in its asset base. It trades in a good volume of 1 million shares per day on average.

Vanguard Communication Services ETF (VOX) – Up 45.2%

The communication service sector got a boost from the surge in mega-cap stocks as well as the blockbuster movie Barbie, which marked a historic moment in the film industry in the third quarter. Vanguard Communication Services ETF targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 118 stocks in its basket, the fund has key holdings in Interactive media & services, and movies & entertainment,

Vanguard Communication Services ETF has AUM of $3.5 billion and trades in a good volume of 233,000 shares a day, on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #3.

Fidelity MSCI Consumer Discretionary Index ETF (FDIS) – Up 42.2%

Americans are now feeling more confident about the economy than they did over the past few months. U.S. consumer confidence jumped to a five-month high in December and retail sales posted surprise growth in November after declining in the prior month.

Fidelity MSCI Consumer Discretionary Index ETF tracks the MSCI USA IMI Consumer Discretionary Index, holding 300 stocks in its basket. It has key holdings in broadline retail, hotels, restaurants & leisure, specialty retail and automobiles. Fidelity MSCI Consumer Discretionary Index ETF has amassed $1.4 billion in its asset base while trading in a good volume of around 107,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #2 (Buy).