Energy ETFs were the largest winners in 2021, thanks to the relaxation of lockup restrictions in the first part of the year, which supported commodity stocks after a rough year in 2020.
While erratic at times, the recovery was continued throughout the year, with oil prices peaking at $83.54 a barrel in October, up from $54.77 at the start of the year, as global economic shortages hit.
This resulted in a sharp jump in inflation, with the US consumer price index climbing 6.8% in the year ending November, reaching its highest level since 1982.
Energy ETFs, on the other hand, saw significant returns, accounting for seven of the top ten performers in 2021, with investors who bet on rising energy costs as the economy sputtered back into life handsomely rewarded.
A shortage of semiconductor components was another inflationary element, resulting in great share price performances for manufacturers around the world as they struggled to keep up with demand.
The pandemic disruption and the listing of numerous significant companies helped private equity ETFs maintain their excellent gains for the year.
It’s predictable that energy ETFs led the performance charts in a year when the global economy was hit hard by the energy crisis.
Oil prices surged to their highest level since 2014 in October, fueled by strong sector performance and rising demand colliding with structural underinvestment in commodities.
The iShares Oil & Gas Exploration & Production UCITS ETF (SPOG) is the best-performing ETF in 2021, having returned 73.4 percent over the past 12 months.
SPOG has been an outlier all year, returning 51.6 percent until the end of June, fueled by its largest holding natural gas giant ConocoPhillips (10%), which has returned 80.6 percent through 2021.
EOG Resources (9.9%) and Canadian Natural Resources (9.1%) are two other top holdings, with returns of 78.9% and 73 percent, respectively.
Several ETFs targeting the US energy sector trailed SPOG, which has 64.1 percent of its index tracking US stocks.
The iShares S&P 500 Energy Sector UCITS ETF (IESU) and the SPDR S&P US Energy Select Sector UCITS ETF (SXLE), which rounded out the top three for the year, returned 57.6 percent and 56.3 percent, respectively, over the same time period.
The Invesco US Energy Sector UCITS ETF (XLES) and the Xtrackers MSCI USA Energy UCITS ETF (XSEN) followed with 54.8 percent and 54.6 percent gains, respectively.
The Xtrackers MSCI World Energy UCITS ETF (XD10) and the iShares MSCI World Energy Sector UCITS ETF (5MVW) rounded out the top ten, with returns of 44.2 percent and 44 percent, respectively.
Oil prices plummeted to $69 a barrel this year, a 20% drop from their October peak, but investors saw it as a buying opportunity.
It’s also worth noting that the strong 12-month performance is no guarantee of future results, as all of the top 10 energy ETFs have had negative returns over the last five years.
Two private equity ETFs that have achieved remarkable returns over the last 12 months have broken into the top performers of last year’s list.
The Xtrackers LPX Private Equity Swap UCITS ETF (XLPE), which has a market capitalization of £424 million, was the fourth-best performing ETF in 2021, returning 54.8 percent and attracting $134.6 million in inflows.
The exceptional success of its top two assets, Warren Buffett’s Berkshire Hathaway (8.4%) and CVS Health Corp (6.8%), which have returned 31.9 percent and 46.7 percent, respectively, has fueled this.
Following XLPE was the $1.2 billion iShares Listed Private Equity UCITS ETF (IPRV), which returned 44.8 percent in the year to January with $344 million in inflows.
With a 7.7% weighting in IPRV, Blackstone boasted that its distributable earnings more than doubled in the third quarter and that its share price had risen by 106 percent in 2021.
With more disruptive startups gaining market share and private equity and venture capital firms seeking listings, the two ETFs have sought to capitalize on the significant gains earned by private equity firms since the onset of the COVID-19 pandemic.
The VanEck Vectors Semiconductor UCITS ETF (SMGB), Europe’s first semiconductor ETF, rounds out the top ten best-performing ETFs.
Launched in December 2020, SMGB returned 48 percent in 2021, riding the semiconductor industry’s volatility, which was exacerbated by supply shortages exacerbated by the COVID-19 pandemic, which had a knock-on effect across the global economy.
The ETF tracks the MVIS US Listed Semiconductor 10% Capped index, which is made up of 25 holdings. The biggest holding, Dutch semiconductor maker ASML Holding, accounts for 10% of the ETF and has returned 74% year to date.
Taiwan Semiconductor Manufacturing Company (10%) and Nvidia Corp (9.4%) are two more top holdings that have seen their share prices climb by 14.3 percent and 131.2 percent, respectively, in 2021.
Investors have been eager to take advantage of the product’s good performance, with SMGB receiving $654.5 million in inflows over the last 12 months, bringing its AUM to $854 million.
In the United States, where the concept is considerably more common, the performance has been mirrored. The VanEck Semiconductor ETF (SMH), VanEck’s US counterpart, has returned 44.3 percent over the same time period, trailing only the Invesco Dynamic Semiconductors ETF (PSI) and the iShares Semiconductor ETF (SOXX), which have returned 46.4 percent and 46 percent, respectively.
Other issuers have been motivated to establish comparable ETFs across the continent as a result of SMGB’s good success. BlackRock introduced the iShares MSCI Global Semiconductors UCITS ETF (SEMI) in August, which has amassed $212 million in assets and has returned 15.4 percent since its start.
It comes as several market analysts predict a strong year for the semiconductor industry in 2022, citing supply and demand restrictions as a major driver of performance.
How long should an ETF be held?
- If the shares are subject to additional restrictions, such as a tax rate other than the normal capital gains rate,
The holding period refers to how long you keep your stock. The holding period begins on the day your purchase order is completed (“trade date”) and ends on the day your sell order is executed (also known as the “trade date”). Your holding period is unaffected by the date you pay for the shares, which may be several days after the trade date for the purchase, and the settlement date, which may be several days after the trade date for the sell.
- If you own ETF shares for less than a year, the increase is considered a short-term capital gain.
- Long-term capital gain occurs when you hold ETF shares for more than a year.
Long-term capital gains are generally taxed at a rate of no more than 15%. (or zero for those in the 10 percent or 15 percent tax bracket; 20 percent for those in the 39.6 percent tax bracket starting in 2014). Short-term capital gains are taxed at the same rates as your regular earnings. However, only net capital gains are taxed; prior to calculating the tax rates, capital gains might be offset by capital losses. Certain ETF capital gains may not be subject to the 15% /0%/20% tax rate, and instead be taxed at ordinary income rates or at a different rate.
- Gains on futures-contracts ETFs have already been recorded (investors receive a 60 percent / 40 percent split of gains annually).
- For “physically held” precious metals ETFs, grantor trust structures are employed. Investments in these precious metals ETFs are considered collectibles under current IRS guidelines. Long-term gains on collectibles are never eligible for the 20% long-term tax rate that applies to regular equity investments; instead, long-term gains are taxed at a maximum of 28%. Gains on stocks held for less than a year are taxed as ordinary income, with a maximum rate of 39.6%.
- Currency ETN (exchange-traded note) gains are taxed at ordinary income rates.
Even if the ETF is formed as a master limited partnership (MLP), investors receive a Schedule K-1 each year that tells them what profits they should report, even if they haven’t sold their shares. The gains are recorded on a marked-to-market basis, which implies that the 60/40 rule applies; investors pay tax on these gains at their individual rates.
An additional Medicare tax of 3.8 percent on net investment income may be imposed on high-income investors (called the NII tax). Gains on the sale of ETF shares are included in investment income.
ETFs held in tax-deferred accounts: ETFs held in a tax-deferred account, such as an IRA, are not subject to immediate taxation. Regardless of what holdings and activities created the cash, all distributions are taxed as ordinary income when they are distributed from the account. The distributions, however, are not subject to the NII tax.
Are exchange-traded funds (ETFs) safer than stocks?
The gap between a stock and an ETF is comparable to that between a can of soup and an entire supermarket. When you buy a stock, you’re putting your money into a particular firm, such as Apple. When a firm does well, the stock price rises, and the value of your investment rises as well. When is it going to go down? Yipes! When you purchase an ETF (Exchange-Traded Fund), you are purchasing a collection of different stocks (or bonds, etc.). But, more importantly, an ETF is similar to investing in the entire market rather than picking specific “winners” and “losers.”
ETFs, which are the cornerstone of the successful passive investment method, have a few advantages. One advantage is that they can be bought and sold like stocks. Another advantage is that they are less risky than purchasing individual equities. It’s possible that one company’s fortunes can deteriorate, but it’s less likely that the worth of a group of companies will be as variable. It’s much safer to invest in a portfolio of several different types of ETFs, as you’ll still be investing in other areas of the market if one part of the market falls. ETFs also have lower fees than mutual funds and other actively traded products.
In 2021, which stocks will be hot?
When looking for the finest stocks to buy and follow, keep in mind that profits growth is only one element to consider. In addition, make sure to follow these three important stock-buying guidelines.
While these fast-growing stocks have solid earnings predictions for 2021 or their current fiscal year, that doesn’t imply they’ll achieve or outperform Wall Street expectations, or that if they do, they’ll soar higher. Make sure you have good buy and sell regulations in place and that you stick to them.
A simple three-step program will help you stay profitable and secure, as well as ready to take advantage of today’s fastest-growing stocks when they present themselves.
What should my ETF investment be?
ETFs have a low entrance barrier because there is no minimum investment amount. You only need enough to cover the cost of one share plus any commissions or fees.
What is the most secure ETF to buy?
“Start with index ETFs,” suggests Alissa Krasner Maizes, a financial adviser and founder of the financial education website Amplify My Wealth. “They have modest expenses and provide rapid diversity.” Some of the ETFs she recommends could be a suitable fit for a wide range of investors:
Taveras also favors ETFs that track the S&P 500, which represents the largest corporations in the United States, such as:
If you’re interested in areas like technology or healthcare, you can also seek for ETFs that follow a specific sector, according to Taveras. She recommends looking into sector index ETFs like:
ETFs that monitor specific sectors, on average, have higher fees and are more volatile than ETFs that track entire markets.
Is it a good time to invest in ETFs right now?
To summarize, if you’re wondering if now is a good time to buy stocks, gurus say the answer is clear, regardless of market conditions: Yes, as long as you aim to invest for the long run, start small with dollar-cost averaging, and invest in a diversified portfolio.