2 Passively Managed ETFs That Crushed the S&P 500 Last Year

Beating the S&P 500 is a hard thing to do consistently, especially if you’re paying hefty management fees or expense ratios for a fund. Indeed, of late, odds are any “active” attempts to top the S&P 500 have been met with underperformance, given the index is fresh off posting its second consecutive year of more than 20% gains.

In any case, I do think that various “passive” approaches (which keep fees at a minimum) could help investors tilt the odds ever so slightly in their favor. Indeed, if you’ve got industry expertise, spot a thematic trend, or recognize relative value in a sector of the market, you may be able to get a slight leg up over the S&P 500 by finding the optimal mix of passive exchange-traded funds (ETFs) that could outrun the broader U.S. indices.

How passive ETFs can help rebalance your S&P 500-heavy portfolio 

Indeed, many skeptics doubt the so-called Magnificent Seven companies, which now comprise a considerable part (close to a third) of the S&P 500. If the Mag Seven trade falters moving forward, the S&P 500 may be weighed down, though perhaps not as much as the Mag Seven-heavier Nasdaq 100. So, if you’re not too bullish on the group of seven tech titans, diversifying away from them with a wide range of alternative ETFs could make sense. 

Of course, it will be an interesting race as investors look for other ETF solutions to help nudge their portfolios away from tech to benefit from a broadening out of stock market gains (most notably beyond mega-cap tech and the Mag Seven). Though tech could outperform again in 2025, we mustn’t forget about other sectors, many of which offer cheaper valuations. 

In this piece, we’ll check out two low-cost passive ETF options that beat the S&P 500 in 2024 and could pull off the feat again this year. As always, these thematic ETFs should complement an already-diversified portfolio (perhaps one that’s already heavy in index funds) rather than replacing a broad market index fund.

SPDR Financial Sector SPDR Fund

It may come as a surprise to some to hear the financial sector has been really heating up of late. In 2024, the SPDR Financial Sector SPDR Fund (NYSEARCA:XLF) gained 27.7%, topping the S&P 500, which clocked in close to 23.7%. Indeed, I don’t expect the financial sector to slow down under the Trump administration as he knocks down various regulatory hurdles faced by the industry. In fact, under President Trump, I’d argue the relative outperformance could kick things up a notch.

With U.S. banks knocking one out of the park on earnings last week, the strength in the XLF seems like it can carry into 2025. Though it’s still early, the XLF is off to a hot start to 2025, rising more than 4%, while the S&P 500 gained just 2%. Indeed, financials seem to be the new, emerging leadership group. As remaining banks, fintechs, and credit card firms march into quarterly earnings, I think there’s potential for more relative strength.

With the XLF, you’ll gain broad exposure to the financial scene (it follows the Financial Select Sector Index) with minimal fees. At the time of this writing, the XLF has a competitive 0.09% gross expense ratio.

SPDR Gold Trust

The SPDR Gold Shares ETF (NYSEARCA:GLD) is a top way to bet on gold. It’s highly liquid and affordable, with a 0.40% expense ratio. If more inflation and stock volatility are in the cards, it’s tough not to add some shine from the GLD to your portfolio.

Gold has been a shining star for investors in 2024, gaining 28.7%, topping the S&P 500 by close to 5%. Undoubtedly, interest rate cuts, continued inflation, geopolitical tensions, and other jitters have helped propel the precious metal to an S&P 500-topping year.

Going into 2025, several factors may just keep the metal ahead of the market. Notably, if nations continue adding to their reserves (a gold rush of sorts), prices could make a move above the $3,000 per ounce level—the current price target held by Goldman Sachs (NYSE:GS).

Though stocks tend to have the edge over stocks in the grander scheme of things, I do think that hefty valuations on stocks and the potential for a “lost decade” in stock returns could paint a shinier picture for gold—a lowly-correlated asset that may shine bright in such a bleak climate for stock returns.