The Best Innovative ETFs of 2023 by Performance
Some innovative funds are up as much as 191% this year.
[This article is part of a new series from etf.com highlighting innovation in ETFs.]
Webster’s defines “innovation” as:
1: a new idea, method, or device
2: the introduction of something new
Investors love innovation because it often leads to new products and new revenue streams. Innovative companies have the potential to deliver outsized growth and, eventually—outsized profits—which is why investors covet them so much.
Over the past decade, innovations like the smartphone, cloud computing and streaming video have turned what were humble companies into some of the biggest in the world.
These innovative companies have upended entire industries and created strong, nearly insurmountable competitive advantages for themselves.
Of course, only a tiny fraction of companies ever go on to become the global giants that Apple, Amazon, Alphabet and the like are today.
But plenty are trying to join their ranks by innovating. In fact, in today’s fast-changing economy, innovation is essential. Companies that don’t innovate are at risk of being overtaken by competitors who do. That’s why more and more investors are on the lookout for innovative firms to invest in.
One route is to invest in individual stocks of innovative companies. But making a bet on just one or two innovative companies can be risky. Another option is to buy exchange-traded funds that invest in a basket of innovative companies.
Some ETFs explicitly invest in innovative firms, while others invest in companies working on cutting-edge technologies, which by their very nature are innovative.
Deciding what is or isn’t an innovative company, and by extension, what is or isn’t an ETF that tracks those type of companies, is subjective.
For a good starting point, check out ETF.com’s “Innovative ETFs” channel, which currently lists 113 such ETFs.
Here are the best-performing funds of 2023, selected from that list.
Leveraged Innovative ETFs
The best-performing innovation ETF of the year juices its returns. The MicroSectors FANG & Innovation 3x Leveraged ETN (BULZ) is up a whopping 192% on a year-to-date basis.
BULZ provides 3x leveraged exposure to an index of 15 large, innovative companies. The index includes eight “core” components—Apple, Amazon, Meta, Alphabet, Microsoft, Netflix, Nvidia and Tesla—as well as seven other top-traded tech stocks.
In addition to BULZ, a few other leveraged ETFs are among this year’s top innovative ETF performers. The Direxion Daily Dow Jones Internet Bull 3X Shares (WEBL) and the AXS 2X Innovation ETF (TARK), are up 82% and 42%, respectively.
WEBL gives you 3x leveraged exposure to the Dow Jones Internet Composite Index, which includes companies that generate at least 50% of their annual revenues from the internet. Meanwhile, TARK gives you 2x exposure to the ARK Innovation ETF (ARKK).
Leveraged ETFs like BULZ, WEBL and TARK are short-term trading tools and are not designed for long-term investing.
Active & Passive Innovative ETF Options
For investors with longer time horizons, innovation ETFs that don’t use leverage are more appropriate. The ARK Next Generation Internet ETF (ARKW), the Spear Alpha ETF (SPRX) and the Clockwise Core Equity & Innovation ETF (TIME) aim to invest in innovative companies and have delivered returns in excess of 37% this year.
Each of these funds is actively managed, which means their success is determined by the stock-picking abilities of their managers.
For investors who don’t want to depend on a fund manager’s judgment, index-based innovation ETFs are available.
The Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 index, is perhaps the most famous innovation ETF of all. The Nasdaq describes its index as comprising “100 of the largest and most innovative non-financial companies listed on the Nasdaq Stock Market based on market capitalization.”
Crypto Blockchain ETFs
An ETF doesn’t need “innovation” spelled out in its name to be one that invests in innovative companies.
Funds that hold stocks that are working on the most cutting-edge technologies are clearly focused on innovation. Those ETFs include those that invest in stocks involved with blockchain technology, the tech that underpins bitcoin.
After a rough 2022, these are among this year’s best-performing funds, with gains of upward of 114%.
The Global X Blockchain ETF (BKCH), which holds stocks of companies that seek to capture the growth of blockchain tech, and its sister fund, the Global X Blockchain and Bitcoin Strategy ETF (BITS), which invests in a combination of blockchain stocks and bitcoin futures, are two of the top gainers in this category.
Others include the iShares Blockchain and Tech ETF (IBLC) and the Fidelity Crypto Industry and Digital Payments ETF (FDIG).
For a full list of this year’s 20 best-performing innovation ETFs, see the table below:
Note: Data measures total returns for the year-to-date period through Aug. 17, 2023
