The best performing ETFs for 2021

Stocks had another fantastic year in 2021. In fact, I have to say large caps had another fantastic year as the returns were quite different depending on where you had your money. The S&P 500 gained almost 30% for the year, but the Russell 2000 returned only about half that amount – 14.5%. The names FAAMG + Telsa accounted for over 25% of the index return, so this was clearly a very small set of stocks driving the gains.

On the sectoral side, the groups that stand to benefit the most from an economic recovery are doing the best. Oil producers and explorers and nuclear-focused ETFs have returned over 60% each. The banks made gains of 35 to 40%, with the smaller regional banks doing a little better than the larger 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 over 35%.

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At the other end of the list, the worst performers did really badly. Clean energy, which had been a darling of the market in 2020, lost more than 25% in 2021. Cannabis stocks also had a difficult year, also losing 25%. Genomics may be the wave of the future, but it certainly didn’t do investors a favor last year. This group has declined by more than 30%. Elsewhere, online retail inventories have fallen more than 40%. Gold and silver miners both fell more than 10%, as did digital payments, immunotherapy and education.

Here is the list of the best performing ETFs for the year 2021.

The best performing ETFs for 2021

It took an annual gain of over 50% to reach the top 30 list, but two ETFs managed to achieve gains of over 100%. the ETF KraneShares Global Carbon (KRBN) was sort of a regular on the monthly top artist lists. It’s a bit of a unicorn in the ETF space in that it offers broad cap-and-trade carbon allowance coverage by tracking the most traded carbon credit futures contracts.

By far the biggest winner, however, has been the Breakwave Dry Bulk Transport ETF (BDRY). The story here is pretty clear. The glut of the global supply chain in 2020 has pushed up shipping costs, nearly quadrupling for this ETF. Keep in mind that this fund is incredibly volatile. It is generally 2-3 times more volatile than the S&P 500, but has sometimes climbed as much 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 US Brent ETF (BNO) all placed in the top 15, riding the wave of rapidly rising energy prices. WTI crude oil prices started the year in the $ 50 range, but ended in the mid-1970s, while natural gas prices rose from around $ 2.70 to almost $ 6 before s ‘settle for just under $ 4 at the end of the year.

Outside of BDRY, there were only a few ETFs in the top 30 that didn’t follow the energy theme. the Invesco S&P SmallCap Value ETF with Momentum (XSVM) and the Invesco S&P SmallCap 600 Income ETF (RWJ) both drove the success of small-cap value trading to big gains last year. XSVM explicitly targeted small cap value stocks, while RWJ leaned heavily towards this group indirectly simply through its targeting strategy.

The other group that received some representation was real estate, the second best performing sector of the year. the Pacer Benchmark Industrial Real Estate SCTR ETF (INDS) and the Nuveen Short Term ETF (NURE) both snuck to the bottom of the list with over 50% payoff. INDS targets pretty much what the name suggests, while NURE targets REITs with short-term leases in an effort to limit sensitivity to interest rates.

Other ETFs to note:

Investors did not need to target specific sub-sectors of the energy space in order to generate huge returns in 2021. They could also have done so with a simple plain vanilla energy ETF. the SPDR Energy Select Sector 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 ETF Global X Uranium (URA) is the larger of the two major uranium ETFs in this space, but it was the North Shore Global Uranium Mines ETF (URNM) which worked much better. the ETF VanEck Rare Earth Metals & Strategic Metals (REMX) gained 80% in a very positive year for some commodities.

Small-cap, even-weighted ETFs, which clearly lean more toward smaller companies, have had a successful year in the energy sector despite the underperformance of small caps as a whole. The value of small caps outperformed the growth of small caps in 2021, although the reverse is true for large caps. Many names in energy fall into the value category and have greatly benefited 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.

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