September will almost certainly be a month that most equity investors would soon forget. The S&P 500's (SPY) loss of 4% was the first monthly loss for the large-cap index since January 2021 and the biggest monthly loss since the March 2020 COVID bear market that saw a loss of 12%. Tech stocks, which investors have often sought out in times of uncertainty, performed even worse by falling 6%. Long-term Treasuries also fell by more than 2% creating one of those unusual environments where stocks and bonds were both falling at the same time. It's essentially a reversal of the behavior we saw after the March interest rate peak where both groups actually gained more than 10% at the same time.

One group that didn't suffer, however, was energy. Not every cyclical sector enjoyed the same success - industrials and materials have still been laggards - but the broad energy sector gained more than 10%. A few factors are at play here. OPEC has been hesitant to fully open up the crude oil production floodgates and that's helped keep the supply/demand curve imbalanced. It's gotten to the point now where there is a legitimate energy supply crunch that could last into the winter months. Energy prices are skyrocketing and that's been good for explorers and drillers, but it's creating a mini-crisis worldwide that could take some time to unwind. Add in the ongoing supply chain bottlenecks and we've got an unstable macro backdrop.

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Global energy demand, however, is expected to continue looking strong, especially as we get closer to the holiday travel season. The Fed has essentially confirmed that the U.S. economic recovery (with a few hiccups) is mostly on track to the point where the central bank is likely going to begin withdrawing some of its support later this year. The government's inability to reach a resolution on the debt ceiling about two weeks before it's scheduled to run out of money will likely add to volatility in the 4th quarter and the struggles for U.S. equities reflect a lack of optimism.

Here's the list of the top performing ETFs for the month of September 2021.

Top Performing ETFs for September 2021

Top Performing ETFs for September 2021

Every ETF on this list, with the exception of only a few, are tied to the energy sector in some way. Energy prices, crude oil and natural gas in particular, have been rising quickly and that's reflected in the gains of commodity-linked products, including the United States Natural Gas Fund (UNG), the United States 12 Month Natural Gas Fund (UNL), the United States Brent Oil Fund (BNO), the Invesco DB Oil Fund (DBO), the United States Oil Fund (USO), the Invesco DB Energy Fund (DBE) and the United States 12 Month Oil Fund (USL). In case you were wondering, the "12 month" funds spread out their exposures to contracts with expirations from 1 to 12 months out. The others, at least before the energy market crash last year, mostly focused on the nearest-month expiration contracts but have since expanded their strategies to avoid the chances such a debacle happens again. Natural gas prices, in particular, have been taking off as some forecasters have begun predicting a cold snap for this winter. Crude oil prices are settled in around $75 a barrel today, but a spike towards $100, while unlikely, is still not out of the question.

On the equity side, we've got all sorts of funds focused on specific areas of the energy space and the broad sector in general. The Energy Select Sector SPDR ETF (XLE) is the biggest name, but the Invesco S&P 500 Equal Weight Energy ETF (RYE), the Fidelity MSCI Energy ETF (FENY), the Vanguard Energy ETF (VDE) and the iShares Energy ETF (IYE) are all represented with gains of at least 8%.

The explorers were the best performing subgroup to be found within energy, but clean energy ETFs are nowhere to be found. Among the winners: the VanEck Vectors Unconventional Oil & Gas ETF (FRAK), the Invesco Dynamic Energy Exploration & Production ETF (PXE), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the iShares U.S. Oil & Gas Explorers & Producers ETF (IEO) all delivered gains of at least 15% on the month.

A fund that has made regular appearances on both the top and performing ETF lists, the Breakwave Dry Bulk Shipping ETF (BDRY), is back on the leaderboard again with a 27% gain. Supply chain issues, again, are the main driver as ships still remain stranded in harbors for weeks at a time waiting to dock and delivery their loads. Shipping issues, which were originally expected to be only short-term in nature, I think could easily last into summer 2022 or beyond. Shipping costs are likely to remain sky high and that could play into BDRY's hands, but expect a LOT of volatility in this fund for a while.

Other ETFs worth noting:

Uranium ETFs have taken advantage of soaring prices over the past two months. The price of an ounce of uranium went from $30 in mid-August to as high as $50 recently before pulling back to its current level around $43. The Global X Uranium ETF (URA) is the best-known name of the group, returning more than 13%, but the North Shore Global Uranium Mining ETF (URNM), a fund that has been around for nearly 2 years but is comparatively smaller, was the bigger winner logging a 22% return.

China ETFs have done poorly thanks to the government's crackdown on the country's big internet companies and an economic recovery that's been rapidly slowing, but that didn't stop the Global X MSCI China Utilities ETF (CHIU) from logging a 10% gain. The outperformance of a defensive sector, such as utilities, isn't surprising but the degree of outperformance perhaps is. CHIU nearly matched the monthly performance of the Global X MSCI China Energy ETF (CHIE) in September.

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