The allure of top-performing exchange-traded funds (ETFs) is strong, but chasing yesterday’s gains can be a risky move. While ETFs offer the flexibility of intraday trading – unlike mutual funds which trade only once daily – their high volatility and niche focus often make them unsuitable for long-term investors.
Why Top ETFs Can Be Misleading
Recent analysis by CNBC identified ETFs with exceptional returns in 2025, significantly outpacing the S&P 500’s 16.4% gain. However, these gains are often driven by specialized, short-term strategies, not broad market trends.
According to Jeff Ptak of Morningstar Research Services, many of these top performers are “niche, hyper-volatile, gimmicky” and should play a minimal role in a prudent, long-term portfolio. Their high-frequency trading nature means they are designed for daily speculation, not buy-and-hold strategies.
The Risks of Hyper-Volatility
The funds that produce the highest returns are often those intended to be held for just one day, as Roxanna Islam of TMX VettaFi explained. Attempting to hold these volatile instruments for longer periods can expose investors to unnecessary risk.
This means that while past performance may seem enticing, it’s unlikely to translate into sustained success for the average investor.
Where to Invest Instead
For most investors, broad-market ETFs like Vanguard Total Stock Market (VTI) or Schwab U.S. Dividend Equity (SCHD) offer a more stable and appropriate solution. Charles Schwab suggests that high-performing ETFs are best suited for active, daily traders seeking niche exposure and tax efficiency.
If you don’t fit that profile, mutual funds or index funds are generally the safer and more effective choice.
Investing in the best-performing ETFs does not guarantee future returns, and in many cases, it’s a strategy better left to short-term speculators.
