Investing

These 3 ETFs Could Have Market-Beating Upside in 2025

Chris MacDonald

Published: January 10, 2025 4:32 pm

The exchange traded fund (ETF) industry could see significant changes in 2025 as global capital continues to flow into these investment vehicles, driven by a number of key factors. For one, passive and active investors alike appreciate the low-cost diversification many ETFs can provide. Owning an entire bucket of stocks in a particular sector or theme can allow for better risk-adjusted returns after time. For individual investors and money managers alike, that’s a good thing.

However, given the thousands of ETFs out there, picking one or even a few to meet one’s personal investing goals is a difficult task. Here are three top ETFs I think can outperform in 2025 and may provide excellent long-term upside for those with a multi-year investing time horizon.

Key Points About This Article:

• Choosing from the thousands of exchange traded funds (ETFs) out there can be a daunting task for all investor types.
• However, these three particular funds look to have outsized upside potential in 2025 and beyond.
• 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.

Vanguard Utilities Index Fund ETF (VPU)

The Vanguard Utilities Index Fund ETF (VPU) is, as its name suggests, a leading ETF tracking the utilities sector. For those bullish on this space for a myriad of reasons (including the fact that we’re likely to see a surge in electricity demand as a result of the AI revolution), this is a top ETF I think should be on every investor’s radar right now. 

I think VPU presents itself as a robust investment option for 2025 due to several compelling factors. To start, VPU provides stable and reliable income to investors over time, driven by the very stable cash flow and earnings growth of the companies held within this fund. Utilities giants are known for their consistent cash flows, and the fundamentals-first aspect of this sector is one thing long-term value-conscious investors can get behind.

Secondly, I think the defensive nature of the utilities sector is something that shouldn’t be overlooked. There are plenty of red flags out there in the market and potential headwinds that may or may not materialize. For those looking to traverse this uncertainty with some degree of confidence, owning companies in a sector that’s relatively recession-resistant can allow for a sleep-at-night portfolio. That’s what most of us are after, at the end of the day.

Finally, analysts are broadly optimistic about VPU’s financial trajectory, forecasting a significant price increase by 2025. This positive outlook, coupled with the fund’s broad exposure to various utility sub-sectors, allows investors to diversify their portfolios effectively while investing in a traditionally resilient sector. Thus, VPU stands out as a prudent choice for those seeking a mix of stability, income, and growth potential in their investment strategy.

VanEck Fabless Semiconductor ETF (SMHX)

For those investors out there looking to take a more aggressive approach to the markets, there’s always the VanEck Fabless Semiconductor ETF (SMHX). This particular ETF strategically targets a niche yet crucial segment of the technology sector. That is, companies that design but do not manufacture semiconductors.

This focus allows investors to capitalize on the burgeoning demand for advanced semiconductor chips, which are integral to the development of cutting-edge technologies such as artificial intelligence (AI) applications and edge computing. Additionally, this structure removes a lot of the idiosyncratic and operational risk tied to this sector, something certain investors don’t like. 

This ETF provides transparency with 26 positions, including key chipmakers like Taiwan Semiconductor and Texas Instruments, alongside industry winners such as Nvidia and AMD. This means that investors can still have plenty of exposure to the high-growth names that are currently driving the market to where it currently stands, but also do so in a much more diversified fashion.

Notably, this ETF also holds other companies which are essential for chip manufacturing equipment such as Applied Materials and ASML, meaning this is truly a picks-and-shovels play on the chip sector. Given the vital role the semiconductor sector plays in the substantial growth expected ahead in the North American and global economy, this is a top ETF I think will continue to generate plenty of interest in 2025.

Global X Artificial Intelligence UCITS ETF (AIQ)

Moving even further out on the growth/risk spectrum, we have the Global X Artificial Intelligence UCITS ETF (AIQ). This ETF offers investors the opportunity to put their capital to work in companies at the forefront of artificial intelligence technologies. This ETF encompasses a range of entities specializing in AI, including developers of AI software, manufacturers of hardware, and providers of essential enabling technologies.

The Global X ETF targets companies benefiting from AI integration and those supplying related infrastructure. Its 84-stock portfolio is concentrated, with 34.1% in its top 10 holdings. That’s certainly among the higher end of the range in terms of concentration, so investors will want to take note of this fact. However, some of the best global players in the AI industry are included in this portfolio, so this tech-heavy ETF certainly suits a specific investor type.

Personally, I’d think of this ETF as a more short-term holding, though investors in this ETF in recent years have certainly seen above-market returns. For those who think the widespread adoption of AI technologies will continue for years to come, this can be a long-term holding. It just depends on each individual investor’s time horizon and risk tolerance level.