Top Performing Sector ETFs

December 17, 2018

It’s a coin flip whether the S&P 500 will end 2018 with a positive or a negative return. As of the close on Dec. 13, the index had returned 0.8%, including dividends—on pace for its weakest showing of the decade-long bull market.

But a flattish S&P 500 doesn’t tell the whole story. Within the broader market, there are 11 sectors, each with wide-ranging returns—all the way from a 12.2% gain to a 15.9% loss.

For sector investors, those who pick and choose industry groups to overweight and underweight relative to the broader market, there’s been a lot of opportunity to outperform or underperform the S&P 500.

Health Care At No. 1

Of the 11 sectors, five of them are up and six of them are down on a year-to-date basis. The best of the bunch is the health care sector, which returned 12.2%, as measured by the Vanguard Health Care ETF (VHT).

“The health care sector has outperformed over the past few months, as investor concerns over the political situation appear to have eased, allowing them to focus on the attractive characteristics of the sector, while the defensive characteristics of the group appear attractive in light of the overall market pullback,” explained Brad Sorensen, managing director of market and sector analysis at Schwab.

Some of the positive characteristics Sorensen sees are an aging population that will demand more medical care and strong corporate balance sheets that are flush with cash. Sorensen sees health care continuing to outperform.


2018 Sector Performance

Ticker Fund YTD Return (%) 30-Day SEC Yield
VHT  Vanguard Health Care ETF 12.20 1.33%
VPU  Vanguard Utilities ETF 11.51 3.14%
VGT  Vanguard Information Technology ETF 8.70 1.35%
VCR  Vanguard Consumer Discretionary ETF  2.87 1.27%
SPY  SPDR S&P 500 ETF Trust 0.74 1.90%
VNQ  Vanguard Real Estate ETF  0.67 2.27%
VDC  Vanguard Consumer Staples ETF -0.37 2.69%
VIS  Vanguard Industrials ETF -9.97 1.75%
VFH  Vanguard Financials ETF -11.26 2.20%
VDE  Vanguard Energy ETF -11.55 2.95%
VOX  Vanguard Communications Services ETF -12.35 1.32%
VAW  Vanguard Materials ETF -15.90 1.96%

Note: Data measures total returns for the year-to-date period through Dec. 13.


Rotation Into Defensive Sectors

Following closely behind health care is the only other sector to deliver double-digit returns this year: utilities. The Vanguard Utilities ETF (VPU) rose 11.5% year-to-date, as investors sought out defensive sectors to hide out in amid 2018’s market volatility.

Utilities struggled earlier this year when rising interest rates sapped some of the appeal of the high-yielding sector. But the recent pullback in rates and growing economic slowdown concerns pushed the sector to an all-time high this week.

It’s a similar situation for consumer staples and real estate. Both sectors swooned early in 2018, falling as much as 12% into the red. But they’ve since clawed their way back to last trade close to flat on a year-to-date basis.

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