2 ETFs That Can Outperform SPY in 2024

The tendency to hold SPY as a sole investment, while providing broad market exposure, may leave significant gains unrealized as Wall Street increasingly coalesces around specific sectors and long-term megatrends. According to the analysis, hundreds of ETFs have consistently outperformed the SPDR S&P 500 ETF Trust for years while maintaining solid diversification and coming from reputable issuers. This doesn’t require investors to venture into narrow, highly concentrated funds with limited holdings, but rather to consider well-established alternatives that capture specific market dynamics more effectively than the broader index.

The current market environment presents unique opportunities beyond traditional S&P 500 exposure. With thousands of ETFs available today, investors can strategically position their portfolios to benefit from structural shifts in the economy, including re-industrialization trends and the ongoing technology revolution driven by artificial intelligence. Both XLI and IWF represent such opportunities, having demonstrated their ability to deliver superior returns while maintaining manageable risk profiles and competitive expense ratios.

The Industrial Select Sector SPDR Fund (XLI), which tracks the Industrial Select Sector Index, provides exposure to industrial companies across various subsectors and has historically trailed the S&P 500. However, the coming years appear pivotal for this ETF as structural changes in global manufacturing create new opportunities. The analysis notes that the United States lost a significant portion of its manufacturing capacity over the past two decades, with many industries moving offshore and China emerging as the dominant manufacturing power.

This trend may be reversing, according to the source text. Re-industrialization and onshoring initiatives accelerated during the Biden administration and could be further supercharged by potential tariffs in a Trump era. This shift is already impacting XLI’s performance, with the ETF gaining 16.75% year-to-date compared to SPY’s 14.8% return. The analysis suggests that tariffs bringing more manufacturing and industry back to the United States could drive continued outperformance in coming years.

From a cost perspective, XLI offers attractive features for investors. The ETF provides a 1.37% dividend yield, outperforming SPY’s 1.08% yield, while charging an expense ratio of just 0.08% ($8 per $10,000 invested) compared to SPY’s higher fee structure. Even if re-industrialization doesn’t progress as expected, the analysis indicates XLI could still match or only slightly lag SPY’s performance, providing a favorable risk-reward profile for investors seeking industrial sector exposure.

The iShares Russell 1000 Growth ETF (IWF) tracks the Russell 1000 Growth Index, providing exposure to large- and mid-capitalization U.S. stocks with growth characteristics. Given that the Russell 1000 itself covers approximately 93% of the total investable U.S. equity market by market capitalization, IWF offers substantial market coverage while focusing specifically on growth-oriented companies. The analysis indicates this ETF has demonstrated sturdy long-term performance, greatly outperforming the S&P 500 over extended periods.

IWF’s concentrated holdings in technology leaders position it well for the ongoing artificial intelligence boom. The ETF’s top five holdings include Nvidia (NVDA) with a 12.9% weighting, Microsoft (MSFT) at 11.67%, Apple (AAPL) at 11.16%, Broadcom (AVGO) at 4.69%, and Amazon (AMZN) at 4.16%. Together, these positions constitute 44.58% of the fund’s holdings, creating significant exposure to companies driving the AI revolution. The analysis notes that these companies’ earnings are rising rapidly, often outpacing their stock price appreciation.

Despite concerns about valuation levels, the analysis suggests tech-heavy indexes like the Nasdaq-100 remain well below Dot Com-era euphoria. The price-to-earnings ratio has remained in the 30-35 times earnings range since August 2024, whereas truly exuberant levels would require multiples of 50-60 times earnings, which was the norm a quarter-century ago. With an expense ratio of 0.18% ($18 per $10,000 invested), IWF provides cost-effective exposure to growth stocks that continue to demonstrate strong fundamental performance amid the AI-driven market cycle.

For investors considering alternatives to SPY-dominated portfolios, both XLI and IWF offer compelling cases based on current market dynamics and forward-looking trends. XLI’s potential stems from structural shifts in global manufacturing and supply chains, while IWF benefits from the sustained growth trajectory of technology leaders driving innovation, particularly in artificial intelligence. Both ETFs come from established, reputable issuers and provide diversification within their respective investment mandates.

The performance differential between these ETFs and SPY, while notable year-to-date, reflects broader market rotations that may persist. XLI’s 16.75% gain versus SPY’s 14.8% demonstrates how sector-specific trends can drive outperformance, while IWF’s concentrated growth exposure captures the momentum of technology innovation. Investors seeking to enhance portfolio returns without venturing into highly speculative territory may find these established ETFs offer a balanced approach to capturing specific market opportunities while maintaining diversification and manageable risk levels.