Developed equity markets around the world saw strong gains in 2021, with domestic equity markets leading international for yet another year. Large cap equities, as represented by the SPDR S&P 500 ETF Trust (SPY) notched a 28.7% gain. Small cap equities, as represented by the iShares Russell 2000 ETF (IWM) rose by 14.5%.
Developed international markets as represented by the iShares MSCI EAFE ETF (EFA) trailed SPY significantly, gaining just 11.5% for the year. And emerging market equities, as represented by the iShares MSCI Emerging Markets ETF (EEM) were on a downward trend for the second half of the year, ending in a loss of 3.6%.
Natural gas and energy ETFs dominated the list of best-performing ETFs for the year, with carbon credit strategies, rare metals, coffee futures and freight futures also making an appearance.
Best-Performing ETFs Of 2021 (Ex. Leveraged/Inverse)
Data measures total returns for the year-to-date period through Dec. 31, 2021
Natural gas and energy prices soared over the course of the year. As economies around the world recovered from the pandemic, the higher level of demand caused energy prices to spike. The supply side also saw disruptions over the course of the year, adding to price pressure.
ETFs that are focused on the exploration and production side were some of the best performers for the year. The First Trust Natural Gas ETF (FCG), a fund that tracks an index of companies that derive a substantial portion of revenue from the exploration and production of natural gas, gained 98.5% over the course of 2021.
More broad-based energy funds also made the list. The Invesco Dynamic Energy Exploration & Production ETF (PXE) focuses on companies involved in the exploration and production of oil & gas. The fund was up 94% for the year.
Several carbon credit funds also made the list. The iPath Series B Carbon ETN (GRN) and the KraneShares Global Carbon ETF (KRBN) invest in the global carbon credit market and were up 147.2% and 107.7%, respectively, with particularly strong gains in the fourth quarter.
Rare Earth ETFs Shine
Uranium and rare earth ETFs rocketed higher, with Reddit being partially responsible for the surge of the North Shore Global Uranium Mining ETF (URNM), which gained 78.3% this year. However, there is also rising demand for the metal due to growing support for nuclear energy as a clean alternative to fossil fuels.
The VanEck Rare Earth/Strategic Metals ETF (REMX) also had a strong year, gaining 79.8%. This ETF tracks an index of global companies that mine, refine or recycle rare earth and strategic metals. These metals are used in the production of tech components and electric vehicles, the latter of which got a boost from the infrastructure bill’s passage in November.
Supply Chain Snarls Boost ETFs
The iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO) entered the best performers list after coffee futures hit their highest levels in a decade in December. Supply chain issues and shortages in container capacity combined with drought and frost that hit crops earlier this year are behind the surge.
But the impact of the global supply chain crisis is most evident in 2021’s top-performing ETF, the Breakwave Dry Bulk Shipping ETF (BDRY). Though the ETF fell by more than 18% in the fourth quarter, BDRY still logged a 283% gain over the course of 2021.
This fund’s performance has been driven by supply chain inefficiencies that have caused the cost of ocean freight to increase at an exponential rate.