Stocks posted another fantastic year in 2021. Actually, I should say that large-caps posted another fantastic year since returns were quite different depending on where you had your money. The S&P 500 gained nearly 30% on the year, but the Russell 2000 only netted about half that amount - 14.5%. The FAAMG+Telsa names accounted for more than 25% of the index's return, so it was clearly a very narrow set of stocks driving the gains.
On the sector side, the groups poised to benefit the most from an economic recovery fared the best. Oil producers & explorers and those ETFs focused on nuclear energy returned more than 60% each. Banks delivered gains of 35-40% with the smaller regional banks doing a little better than the big banks. Elsewhere, semiconductor stocks and homebuilders both returned more than 40% each. The retail sector, despite some ups and downs, had a good year overall, returning more than 35%.
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On the other end of the list, the worst performers did really poorly. Clean energy, which had been a market darling in 2020, lost more than 25% in 2021. Cannabis stocks also had a rough year, losing 25% as well. Genomics may be the wave of the future, but it sure didn't do investors any favors last year. This group was down more than 30%. Elsewhere, online retail stocks tanked more than 40%. Gold & silver miners were both down more than 10%, as were the digital payments, immunotherapy and education sectors.
Here's the list of the top performing ETFs for the year 2021.
It took a yearly gain of more than 50% to even crack the top 30 list, but two ETFs managed to pull off 100%+ gains. The KraneShares Global Carbon ETF (KRBN) was something of a regular on the monthly top performers lists. It's a bit of a unicorn in the ETF space in that it offers broad coverage of cap-and-trade carbon allowances by tracking the most traded carbon credit futures contracts.
The biggest winner by a large margin, however, was the Breakwave Dry Bulk Shipping ETF (BDRY). The story here is pretty clear. Global supply chain gluts in 2020 sent shipping costs soaring and that resulted in nearly a quadruple for this ETF. Keep in mind that this fund is incredibly volatile. It's routinely 2-3 times as volatile as the S&P 500, but at times jumped to as high as 6 times.
One of the big themes of 2021 was energy prices. The First Trust Natural Gas ETF (FCG), the United States Gasoline ETF (UGA), the United States Oil ETF (USO), the United States 12 Month Oil ETF (USL) and the United States Brent Oil ETF (BNO) all cracked the top 15, riding the wave of rapidly rising energy prices. WTI crude oil prices started the year in the low $50s, but finished in the mid $70s, while natural gas prices rose from around $2.70 to peak at nearly $6 before settling in at just under $4 by the end of the year.
Outside of BDRY, there were only a few ETFs within the top 30 that didn't follow the energy theme. The Invesco S&P SmallCap Value with Momentum ETF (XSVM) and the Invesco S&P SmallCap 600 Revenue ETF (RWJ) both rode the success of the small-cap value trade to big gains last year. XSVM targeted small-cap value stocks explicitly, while RWJ tilted heavily towards that group indirectly simply by means of its targeting strategy.
The other group receiving some representation was real estate, the 2nd best performing sector of the year. The Pacer Benchmark Industrial Real Estate SCTR ETF (INDS) and the Nuveen Short-Term REIT ETF (NURE) both snuck in at the bottom of the list with 50%+ gains. INDS targets pretty much what the name implies, while NURE targets REITs with short-term lease agreements in an effort to limit interest rate sensitivity.
Other ETFs worth noting:
Investors didn't need to target specific subsectors of the energy space in order to capture huge returns in 2021. They could have done it with a simple plain vanilla energy ETF as well. The Energy Select Sector SPDR ETF (XLE), the Vanguard Energy ETF (VDE) and the Fidelity MSCI Energy ETF (FENY) all made the list.
Uranium and other rare earth metals also performed very well last year. The Global X Uranium ETF (URA) is the larger of the two big uranium ETFs in this space, but it was the North Shore Global Uranium Mining ETF (URNM) that performed much better. The VanEck Rare Earth Metals & Strategic Metals ETF (REMX) gained 80% in a year that was very positive for select commodities.
Small-cap and equal-weight ETFs, which obviously tilt more towards smaller companies, had a successful year within the energy sector despite small-caps at-large underperforming. Small-cap value performed much better than small-cap growth in 2021 despite the opposite occurring in large-caps. Many energy names fall into the value category and benefited greatly from its positioning. The Invesco S&P SmallCap Energy ETF (PSCE) and the Invesco S&P 500 Equal Weight Energy ETF (RYE) were two beneficiaries.