The year 2025 began with post-election optimism and expectations of a strong first quarter. Instead, markets were hit by the rise of low-cost AI initiatives from China, the adverse impact on the U.S. Big Tech, Trump tariffs, sticky inflation, and persistently high interest rates. Stabilization in the market returned in the month of May after a tariff-led, turbulent April.
Market euphoria started to solidify from midyear, thanks to easing trade tensions. There have been three Fed rate cuts this year, with the action starting in September. That momentum faded suddenly when the longest U.S. government shutdown brought the fourth-quarter economic progress to a halt, and overvaluation concerns intensified in the AI space.
Even in mid-December, the AI market continued to face a tug of war between optimism and caution. Oracle’s $10 billion data center project in Michigan hit a roadblock (per Financial Times, as quoted on Yahoo Finance) after funding talks with Blue Owl stalled, while Micron’s strong earnings and upbeat AI demand forecast lifted its shares (Micron stock is up 17.5% over the past week), highlighting the market’s mix of possibilities and perils.
Still, with all those worries, Wall Street has put up an upbeat show in 2025. SPDR S&P 500 ETF Trust SPY has jumped 17.1% in the year-to-date frame (as of Dec. 22, 2025). The Nasdaq-100-heavy ETF Invesco QQQ Trust, Series 1 QQQ has surged 21.4%, and the SPDR Dow Jones Industrial Average ETF Trust DIA has advanced 14.1% in the year-to-date frame.
Against this backdrop, below we highlight a few winning top-ranked exchange-traded funds (ETFs) of 2025 that beat the broader market.
Semiconductor
First Trust NASDAQ Semiconductor ETF FTXL – Zacks Rank #2; Up 48.6% YTD
Strive U.S. Semiconductor ETF SHOC – Zacks Rank #2; Up 48.4% YTD
VanEck Semiconductor ETF SMH – Zacks Rank #1; Up 47.1% YTD
Chip stocks surged in 2025, riding on sustained demand for artificial intelligence, cloud computing and advanced data centers. Heavy spending by hyper-scalers and enterprises boosted orders for high-performance processors, memory and networking chips. Even as parts of the broader tech sector faced volatility, chipmakers outperformed, thanks to strong end-market demand and the AI-led investment cycle. The Fed’s easy money policy acted as another tailwind.
Japan
iShares MSCI Japan Value ETF EWJV – Zacks Rank #2; Up 33.2% YTD
WisdomTree Japan Hedged Equity ETF DXJ – Zacks Rank #2; Up 32.4% YTD
WisdomTree Japan SmallCap Dividend ETF DFJ – Zacks Rank #2; Up 30.4% YTD
Japanese stocks gained on the help of still-low interest rates. Stocks hit a record high after the LDP picked expansionist Sanae Takaichi as leader in October, fueling hopes of higher government spending and continued easy monetary policy. Optimism around AI, semiconductors and defense helped drive gains in Japanese stocks.A flat yen this year probably boosted the profitability of Japan's major export-oriented companies.
Financials
Invesco KBW Bank ETF KBWB – Zacks Rank #2; Up 32.4% YTD
iShares U.S. Broker-Dealers & Securities Exchange IAI –Zacks Rank #2; Up 26.2% YTD
The U.S. banking sector is ending 2025 on a strong footing, with Q3 profitability hitting its highest level in more than a decade (per S&P Global), thanks to solid margins, healthy credit quality, and a rebound in capital markets activity.
The Fed has cut rates three times this year, boosting risk-on trade sentiments and pushing up long-term rates. Since banks borrow money at short-term rates and lend capital at long-term rates, the steepening of the yield curve favors financial ETFs.
Pharma
iShares U.S. Pharmaceuticals ETF IHE – Zacks Rank #2; Up 31.6% YTD
With AI bubble fears doing the rounds and the economy moving ahead at a sluggish pace, safe sectors like healthcare gained precedence lately. Moreover, biotech stocks have been strengthening due to innovations and increased mergers and acquisitions. Heading into 2026, the industry is entering an investment “super-cycle,” with major drugmakers committing about $370 billion to U.S. projects over the next five years, according to a DPR Construction report.
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SPDR S&P 500 ETF (SPY): ETF Research Reports
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
WisdomTree Japan Hedged Equity ETF (DXJ): ETF Research Reports
VanEck Semiconductor ETF (SMH): ETF Research Reports
iShares U.S. Pharmaceuticals ETF (IHE): ETF Research Reports
Invesco KBW Bank ETF (KBWB): ETF Research Reports
iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI): ETF Research Reports
WisdomTree Japan SmallCap Dividend ETF (DFJ): ETF Research Reports
First Trust NASDAQ Semiconductor ETF (FTXL): ETF Research Reports
iShares MSCI Japan Value ETF (EWJV): ETF Research Reports
Strive U.S. Semiconductor ETF (SHOC): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
