The best way to describe 2016 for investors is that it was a year of surprises, including these:
- The U.S. stock market had its worst start to the year ever, plunging 8% in its first 10 trading sessions and more than 11% in its first 20.
- Crude oil prices tumbled to a 13-year low of $26/barrel in January, and doubled in the next several months.
- Negative interest rates became pervasive, accounting for more than $13 trillion worth of bonds around the world at one point.
- The benchmark 10-year U.S. Treasury rate fell to a record-low 1.32% in July and doubled during the next five months.
- The U.K. voted to leave the eurozone, and "Brexit" had essentially no negative impact on the global economy or stocks.
- Donald Trump won the U.S. presidential election and ignited a furious stock market rally.
In a year full of surprises―many of them perceived to be negative, by conventional wisdom―no one would have imagined that the S&P 500 would be where it is, up more than 13% for the year.
Perhaps that's the biggest surprise of all.
Emerging Markets & Commodities Comeback
In spite of all of the unexpected events, 2016 became a breakout year for equities. It's a year in which the seven-year bull market in U.S. stocks resumed after pausing for several months due to concerns about China and an "earnings recession" for U.S. corporations.
But it wasn't just U.S. stocks that rallied. Emerging market equities made a comeback, with the MSCI Emerging Markets Index climbing almost 10% on the year. The same can be said about commodities; the S&P GSCI Spot Index jumped 26% this year.
As it turns out, ETFs tied to emerging markets and commodities ended up being the best-performing funds of the year. Each of the top 10 ETFs of 2016 targeted either emerging market equities or commodity-related equities.
Returns for this group of nonleveraged/noninverse funds ranged from 58% to 122% in the year-to-date period through Dec. 21.
That's impressive, but it must be put in context. For the past few years, emerging market and commodity stocks were decimated on the back of the China slowdown and other factors. Every fund on 2016's top 10 list was down in 2015 and 2014. With the exception of two, they were all down in 2013 as well.
Thus, while 2016 may have marked the bottom for emerging market and commodity ETFs, most aren't anywhere near their all-time highs.