One quarter into 2021 and some clear trends have emerged in financial markets. The broader U.S. stock market picked up where it left off last year, continuing to hit record after record.
But the strength in something like the S&P 500, which gained 6.2% in Q1, masked the powerful rotation into and out of certain pockets of the market that took place under the surface. For instance, the iShares Russell 1000 Value ETF (IWD) jumped 11.3% in Q1, compared with only a 1% gain for the Russell 1000 Growth ETF (IWF).
The iShares Russell 2000 ETF (IWM) rallied 12.9% in the same period, double the return of the S&P 500.
The same growth-to-value rotation played out at the sector level as well; for example, the SPDR Energy Select Sector SPDR Fund (XLE) surged 30.8%, trouncing the 2.4% gain for the Technology Select Sector SPDR Fund (XLK).
These moves were in sharp contrast to 2020, when high-growth secular stocks were all the rage. 2021 has been the year of the downtrodden comebacks.
That context is important when viewing the first quarter’s best-performing ETFs list. The ETFs that are performing the best this year are some of the worst-performing ETFs of 2020. But now that the economy is rapidly improving, these once-unloved funds are having a moment.
Best-Performing ETFs Of 2021 (ex. leveraged/inverse)
|BDRY||Breakwave Dry Bulk Shipping ETF||119.74%|
|CNBS||Amplify Seymour Cannabis ETF||66.48%|
|POTX||Global X Cannabis ETF||62.12%|
|MJ||ETFMG Alternative Harvest ETF||59.72%|
|BLOK||Amplify Transformational Data Sharing ETF||59.63%|
|THCX||The Cannabis ETF||57.52%|
|PXE||Invesco Dynamic Energy Exploration & Production ETF||46.06%|
|FCG||First Trust Natural Gas ETF||45.24%|
|PSCE||Invesco S&P SmallCap Energy ETF||43.80%|
|PXI||Invesco DWA Energy Momentum ETF||40.83%|
|RWJ||Invesco S&P SmallCap 600 Revenue ETF||40.71%|
|TOKE||Cambria Cannabis ETF||40.51%|
|XOP||SPDR S&P Oil & Gas Exploration & Production ETF||39.65%|
|XSVM||Invesco S&P SmallCap Value with Momentum ETF||39.46%|
|YOLO||AdvisorShares Pure Cannabis ETF||39.06%|
|XRT||SPDR S&P Retail ETF||38.94%|
|PSCD||Invesco S&P SmallCap Consumer Discretionary ETF||37.91%|
|IEO||iShares U.S. Oil & Gas Exploration & Production ETF||36.40%|
|SYLD||Cambria Shareholder Yield ETF||34.98%|
|FTXN||First Trust Nasdaq Oil & Gas ETF||33.92%|
Data measures total returns for the year-to-date period through March 31, 2021.
Perhaps no group has been more unloved than energy. Left for dead in 2020 after oil prices briefly went negative, this sector quietly made a comeback during the first quarter. Seven of the 20 best-performing ETFs of the quarter are energy-related.
The Invesco Dynamic Energy Exploration & Production ETF (PXE), the First Trust Natural Gas ETF (FCG) and the Invesco S&P SmallCap Energy ETF (PSCE) were the best among those, rallying 46.1%, 45.2% and 43.8%, respectively, during the first three months of the year.
Investors’ growing enthusiasm for “cheap” stocks certainly played a role in energy’s resurgence during Q1, but it couldn’t have happened without the rebound in energy prices.
Oil has come a long way from its shocking foray into negative territory last April. Recently, WTI oil prices have been hovering around $60, which puts them back to where they were before the pandemic began. Natural gas prices are also back to pre-COVID levels, with Henry Hub prices last trading around $2.50/mmbtu.
Marijuana Legalization Hopes
After energy, the next most prolific group to find itself on the top performers list is cannabis. A total of six cannabis ETFs made it onto the top 20, buoyed by expectations that a Democratic majority in Congress may lead to legalization of marijuana at the federal level.
Those expectations were boosted a bit after Joe Biden won the presidential election in November, but it wasn’t until Democrats won both Senate run-off elections in Georgia that investors really began pricing in the potential for legalization.
Senate Majority Leader Chuck Schumer said this week that the Senate will make a push to pass legislation legalizing marijuana “at some point,” with or without the blessing of the president, who has been more reluctant to get behind the legalization train than his Democratic colleagues.
Shipping ETF At No. 1
Rounding out the list of the 20 best-performing ETFs of the first quarter was a diverse mix of funds. The Amplify Transformational Data Sharing ETF (BLOK) rode the boom in crypto to a 59.6% gain during the quarter.
The Invesco S&P SmallCap 600 Revenue ETF (RWJ) climbed 40.7%, handily outperforming the broader small cap space. Ditto the Invesco S&P SmallCap Value with Momentum ETF (XSVM), up 39.5% in the period.
The SPDR S&P Retail ETF (XRT) returned 38.9%, capitalizing on a brief period when it held an outsized position in surging GameStop shares.
Finally, the Breakwave Dry Bulk Shipping ETF (BDRY) rocketed higher by 119.7% in Q1 thanks to soaring shipping rates. Interestingly, BDRY hasn’t really benefited from the Suez Canal obstruction saga; the ETF made its high last month and has been range-bound ever since.