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Despite a poor end to the year, the S&P 500 has enjoyed another spectacular year in 2024, rising 25%. While the New Year is clouded with uncertainty, the enduring buzz around technology stocks could propel the index through the roof again in 2025.
Investors can gain exposure to the index in a number of ways. They can buy individual shares, or open a position in an exchange-traded fund (ETF) that tracks the S&P 500.
Alternatively, investors can focus on a specific group of stocks using the expanding array of sector or thematic ETFs — a trend that is gaining significant traction.
Targeted ETFs like these have the potential to outperform standard benchmarks such as the S&P 500. Moreover, they offer additional benefits tailored to an investor’s objectives.
Here are two worth consideration today.
iShares S&P 500 Information Technology Sector ETF
As I say, excitement around tech stocks — and in particular those with a hand in developing artificial intelligence (AI) — has powered the S&P 500’s smart gains in 2024.
This can be illustrated by the stunning performance of the iShares S&P 500 Information Technology Sector ETF (LSE:IUIT). It’s up 42.3% in the year to date, driven by tech heavyweights like chipmaker Nvidia, social media giant Meta, and e-marketplace Amazon.
As with any investment, gains like these leave the fund in danger of a price correction. This can happen if excessive profit taking sets in, or if investor confidence suddenly fades.
But I’m confident the fund can continue outperforming over the long term. As well as AI, it provides exposure to other fast-growing technologies like cloud computing, cybersecurity, robotics, and autonomous vehicles.
This ETF’s delivered an average annual return of 24.9% since 2019. I expect these strong returns to continue, which is why I currently hold it in my own portfolio.
ProShares S&P 500 Dividend Aristocrats ETF
The US stock market isn’t famed for its dividend culture. Investors seeking dividends often turn to London, which boasts a rich selection of reliable shares delivering large and growing payouts.
But investors can still tap into these qualities Stateside with the ProShares S&P 500 Dividend Aristocrats ETF (LSE:NOBL). As the name suggests, this thematic ETF is one that focuses on dividend growth shares.
It holds stocks that have grown dividends for 25 consecutive years or more. In total, it holds shares in 66 different businesses, with major holdings including household names like Stanley Black & Decker, McDonald’s, and IBM.
The dividend yield here isn’t the largest, at 2.25%. But its ability to deliver reliable passive income growth still makes it worth serious attention.
What’s more, with capital gains also taken into account, this ProShares fund has delivered an average annual return of 10.9% over the past five years. That’s better than the 6.2% the FTSE 100 — which is more popular with dividend investors — has delivered over the same timeframe.
Its bias towards dividend shares could see it underperform growth stock-focused ETFs during bull markets. However, the stable and rising income it provides still makes it worthy of a close look, depending on an investor’s goals.
