The final figures are in: 2018 was the worst year for the U.S. stock market since the financial crisis. For the first time since 2008, the S&P 500 provided a negative return for investors when including dividends—a loss of 4.6%.
The index briefly fell more than 20% below its all-time high in December amid relentless year-end selling. Trade war, global growth, interest rate and Brexit concerns all weighed on investors’ minds throughout the year
Nine of the 11 stock market sectors finished 2018 in the red; only health care and utilities managed to eke out gains.
As poorly as U.S stocks performed in 2018, international equities fell even more. The Vanguard FTSE All-World ex-US ETF (VEU) tumbled 14.2% and the Vanguard FTSE Emerging Markets ETF (VWO) sagged 14.7%.
Bonds Eke Out Gain
Even bonds, typically a haven during times of market turmoil, didn’t provide in 2018 the safety that investors are accustomed to. The iShares Core U.S. Aggregate Bond ETF (AGG) eked out a slim 0.1% return, barely escaping with its fifth-straight year of gains after trading in the red for much of 2018.
The iShares U.S. Treasury Bond ETF (GOVT) returned 0.3%; the iShares National Muni Bond ETF (MUB) gained 0.9%; the iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD) slipped 3.8%; the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) fell by 2%; and the iShares JP Morgan USD Emerging Markets Bond ETF (EMB) shed 5.5%.
Dollar Up, Commodities Down
One of the few bright spots in 2018’s tumultuous market was the U.S. dollar. It rallied 4.4%, pushing the Invesco DB U.S. Dollar Index Bullish Fund (UUP) higher by 7.1%.
The broader Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) dropped by 12.8% during the year.
VIX ETPs Surge
As poorly as financial markets performed in 2018, as in any year, there were some ETFs that managed to buck the trend. The biggest winners were ETFs that either bet against the areas of the market that did badly, or ETFs that went long VIX futures.
The Cboe Volatility Index (VIX) ended the year at 25.4, up substantially from where it started the year, near 11.
In turn, VIX ETPs like the iPath Series B S&P 500 VIX Short Term Futures ETN (VXXB) leapt 72.4%.
Other leveraged and inverse products that did well were those that short stocks of oil and gas producers, regional banks, metals and international equities.
Going long the U.S. dollar against the Australian dollar also paid off. The VelocityShares Daily 4x Long USD vs AUD ETN (DAUD) jumped 55.3% in 2018.
Top-Performing ETFs Of 2018 (all-encompassing)
Cocoa & Saudi ETFs Rally
Stripping out the leveraged, inverse and VIX products results in a list of top-performing ETFs that have smaller-but-still-stellar returns.
Commodity products, such as the iPath Bloomberg Cocoa Subindex Total Return ETN (NIB), the ETFS Physical Palladium Shares (PALL) and the United States 12 Month Natural Gas Fund LP (UNL) were all solidly in the green.
Meanwhile, even with the fallout from the murder of journalist Jamal Khashoggi, the iShares MSCI Saudi Arabia ETF (KSA) rallied 13.1% in 2018. Another Mideast fund, the iShares MSCI Qatar ETF (QAT), also did well, returning 20%.
Top-Performing ETFs Of 2018 (excluding inverse/volatility/VIX ETPs)
Tables data measure total annual returns for 2018.
Health Care Outperforms
Rounding out the top performers list was a handful of industry ETFs. With health care being the No. 1 stock market sector of the year, unsurprisingly, some funds targeting that group made the cut.
On the other hand, even though the technology sector as a whole fell in 2018, there were some niche tech ETFs that were positive. Those included the Invesco Dynamic Software ETF (PSJ), the SPDR S&P Internet ETF (XWEB) and the iShares Expanded Tech-Software ETF (IGV).
Rounding out the top performers list were two alternative ETFs. One is the AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL), which goes long low-beta stocks and shorts high-beta stocks—a market-neutral strategy that paid off in 2018’s risk adverse environment.
The other is the Pacer Trendpilot 100 ETF (PTNQ), a trend-following ETF that goes long Nasdaq-100 stocks when they are above the 200-day moving average and switches to cash when the 200-day moving average turns lower.