Investing

This ETF Is Trouncing the Market and Doesn't Rely On Nvidia For Its Gains

Rich Duprey

Published: October 29, 2024 12:54 pm

Look at the performance of most market-beating exchange-traded funds (ETF) these days and you see they probably have one thing in common. Nvidia (NASDAQ:NVDA) is likely a significant holding in their portfolio.

The artificial intelligence chipmaker is up 185% in 2024. It’s not the best-performing stock on the market, but because it is the second most-valuable company behind Apple (NASDAQ:AAPL) it plays an outsized role in how many ETFs that own it perform. Especially for those portfolios that are weighted to a company’s size, Nvidia is going to help them lead the way.

It was that way with the stock market last year when the Magnificent Seven stocks ruled the roost. Because of the sheer size of the companies, they ended up accounting for the lion’s share of the S&P 500‘s performance in 2023. Those seven stocks returned an average of 75% that year while the index as a whole was up 24%.

So my goal was to find an ETF that didn’t rely upon Nvidia, Apple, Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT), or even Tesla (NASDAQ:TSLA) for its performance. But I still wanted it to be outperforming the market as a whole.

It is how I came across the ProShares On-Demand ETF (NYSEARCA:OND). The exchange-traded fund is handily outperforming the benchmark index by 11 percentage points, beating it 33% to 22%. So let’s take a closer look at why it is winning.

24/7 Wall St. Insights:

• Nvidia (NVDA) has been responsible for most of the gains of market indexes and the ETFs that track them.
• You can find an ETF that doesn’t rely upon the chipmaker by looking to the second-best performing sector, consumer discretionary stocks, to enjoy outsized gains.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Not everything needs to be tech

While the tech sector is leading the market again this year, up 33.5% so far, many investors might not realize that a more mundane sector is quickly climbing the ladder. Consumer discretionary stocks have returned 13% in 2024, putting them down in eighth place and behind the S&P 500. 

But over the past three months, the consumer discretionary sector is one of the best performing sectors returning 9.8% compared to the tech sector at 8% and the index at 7%. That coincides with tech’s selloff that began in July as investors rotated in safer, more solid consumer-oriented businesses.

Yet the ProShares On-Demand ETF has been on a roll for longer than that, returning nearly 60% over the past 12 months versus a 42% gain by the broad market index. There’s good reason to believe the ETF will continue its strong rally.

Inflation and high interest rates have hit consumer stocks hard. However, now that the Federal Reserve is entering a new rate-easing cycle, we’re likely to see them advance as the cost of borrowing declines and inflation eases.

Yet the ProShares ETF is uniquely named, so let’s take a closer look at its components.

Catering to the consumer

As the name suggests, the On-Demand ETF invests in stocks that cater to consumer demand for on-demand services and experiences, including streaming video and music, e-gaming, and grocery shopping.

Such services are not limited to the U.S., but have taken off globally as well. For that reason, the ProShares On-Demand ETF has an international mix of companies. In fact, its largest holding is Meituan (OTC:MPNGY), China’s largest e-commerce delivery company with a 69% share of the market. It provides not only food delivery and shopping services, but also travel and entertainment. Meituan represents 6.5% of the ETF’s portfolio and year-to-date its shares have soared 131%. 

The next largest holding in the ProShares ETF portfolio is Delivery Hero (OTC:DELHY), a German food ordering and delivery service. It says it is the top global delivery service with over 500,000 restaurants on its platform and delivering in more than 70 countries. Taking a 5.6% share of the ETF’s portfolio, Delivery Hero is up more than 65% in 2024.

Taiwan-based video game developer International Games System is the third largest holding at 5.5%, but only trades on the Taipei Exchange. You would need to buy an ETF like ProShares On-Demand to gain access to it. Year-to-date its stock has nearly tripled in value, outperforming even Nvidia.

You have to get down to the fourth position to find a stock that trades on the U.S. markets. DoorDash (NASDAQ:DASH) is familiar to most, but dovetails well with the ETF’s focus on delivery services. DASH stock is up 55% in 2024 and represents 5.3% of the portfolio.

Key takeaways

It should be noted that On-Demand does own shares of Nvidia. It is the 10th largest position in the portfolio and represents just 4.6% of the total. With the nine larger positions accounting for nearly half of the portfolio, the chipmaker doesn’t really influence the ETF’s performance all that much.

The ProShares On-Demand ETF has an expense ratio of less than 0.6%, making it a cost-effective investment. It’s one to consider adding to your own portfolio to capture demand for consumer services.