Aggressive Growth ETFs Poised to Outperform in Volatile Market
VanEck’s Growth ETFs Navigate Volatility Amid AI Sentiment November 22, 2023 – Amidst increased market volatility driven by shifts in artificial intelligence sentiment, several aggressive growth ETFs are demonstrating resilience and offering investors potential opportunities. Specifically, the VanEck Semiconductor ETF (SMH) and the SPDR NYSE Technology ETF (XNTK) have delivered impressive year-to-date returns, despite recent market adjustments. While the broader market has experienced a 5% pullback in November, these ETFs are positioned to capitalize on continued growth, particularly within the semiconductor and broader technology sectors.
The VanEck Semiconductor ETF (SMH) has achieved a remarkable 43% year-to-date gain, significantly outperforming the S&P 500. This success is largely attributed to the ongoing demand for semiconductors, fueled by the expanding AI industry. The ETF’s beta of 1.7 suggests potential for amplified gains during a rebound, but also a heightened risk of volatility, particularly if anxieties surrounding AI adoption escalate into a “growth scare.” Investors seeking exposure to the AI trade may view the semiconductor sector as a compelling investment, especially when considering the current market prices. Recent improvements in U.S.-China relations also contribute to a positive outlook, potentially triggering increased deals and reduced tariff threats, which could benefit semiconductor companies. The ETF’s performance hinges on continued AI momentum, however, and investors should be prepared for potentially significant volatility should concerns about an "AI winter" take hold.
The SPDR NYSE Technology ETF (XNTK) presents a compelling alternative for investors seeking broad technology exposure. The ETF, which tracks a basket of nearly 35 technology stocks with a low expense ratio of 0.35%, has generated a year-to-date return of approximately 38%, despite a recent 5% dip. The ETF’s equal-weighting strategy provides diversification, mitigating the risks associated with concentrating investments in a few dominant tech companies – a characteristic often found within the “Magnificent Seven.” This approach, combined with the ETF’s weighting across a broader range of AI-related sectors, including semiconductors (around 30%), semi-materials, and equipment, positions it favorably to benefit from the overall AI trade. Moreover, the ETF’s market-beating performance reflects its ability to capitalize on sectors presently underrepresented in traditional indices.
Analysts note that the S&P 500’s heavy concentration in large-cap tech companies contrasts with the XNTK’s more diversified composition. This differentiation allows the ETF to maintain its positive trajectory as long as the AI trade remains intact and as larger, more established technology firms encounter periodic corrections or “AI winters.” The ETF’s beta of 1.46 indicates a lower level of risk compared to the VanEck Semiconductor ETF’s beta of 1.68, though both ETFs are heavily influenced by the ongoing expansion of artificial intelligence. Investors should carefully consider their risk tolerance before investing in either of these aggressive growth ETFs.
