Top Performing Sector ETFs: 1Q 2018

March 13, 2018

Despite this year’s breathtaking moves in the stock market, the major stock index averages are doing pretty well.

After plunging nearly 12% from its highs in February, the S&P 500 clawed back to last trade with a 4.1% gain for the year. Not many investors are going to be complaining about that type of return in a little over two months.

At least so far, concerns about rising interest rates, faster inflation, and more recently—trade wars—have all been successfully absorbed by the market. But those market worries haven’t affected each sector within the market the same way.

A look under the hood reveals a wide divergence in the performance between the 11 stock market sectors. In fact, about half of them—five of 11 sectors—are down for the year. The worst of the bunch is down by 8.9% so far in 2018, while the best is up 11.9%. 


Fund Ticker YTD Return SEC
Vanguard Information Technology ETF VGT 11.9% 1.0%
Vanguard Consumer Discretionary ETF  VCR 6.7% 1.2%
Vanguard Financials ETF VFH 6.3% 1.7%
Vanguard Health Care ETF VHT 5.8% 1.4%
Vanguard Industrials ETF VIS 2.8% 1.6%
Vanguard Materials ETF VAW 1.3% 1.7%
Vanguard Telecommunication Services ETF VOX -1.7% 3.7%
Vanguard Consumer Staples ETF VDC -3.7% 2.6%
Vanguard Energy ETF VDE -5.4% 2.7%
Vanguard Utilities ETF VPU -6.4% 3.5%
Vanguard Real Estate ETF  VNQ -6.9% 3.8%

Note: Data measures the year-to-date return through March 9.


Tech A Powerhouse

This year’s sector powerhouse is the same one as last year: technology. After climbing more than 37% in 2017, the Vanguard Information Technology ETF (VGT) is already up 11.9% in 2018, and trading at an all-time high.

It’s not hard to understand why investors remain so enthusiastic about tech. The sector is filled with cash-rich, high-growth companies, including Google, Facebook and bitcoin-mining chipmaker Nvidia, to name a few. Tech revenues are estimated to grow by 11% this year, the second-highest growth rate among all sectors, according to FactSet.

“You look at tech and think, ‘What’s the catalyst that’s going to bring it down?’ I don’t see one in the short term, and that makes me confident as a trader to go into those stocks that have been the leaders,” said Dennis Dick, a proprietary trader at Bright Trading.

Other Side Of The Coin

Of course, there are two sides to every story. Tech has outperformed the rest of the market to such an extent that some analysts are warning it may be getting risky. The tech sector now represents a whopping 25% of the S&P 500—which helps explain why the broad index has posted a solid return this year despite declines in other sectors.

Tech’s weighting is not quite as high as it was during the dot-com bubble, when it grew to as large as a third of the S&P 500, but it’s gotten to the point where people are taking notice.

"It bears watching for sure," said analysts at Bespoke Investment Group. "A weighting of 25%+ is ... nothing to sneeze at.”

That said, tech’s weighting in the broader market could drop later this year regardless of what happens with share prices. In September, S&P Dow Jones Indices and MSCI will move current tech giants like Alphabet (parent company of Google), Facebook and others into the new communication services sector under the Global Industry Classification Standard.

Those two companies alone have a combined market capitalization of $1.3 trillion. Reclassifying them from tech to communications will surely put downward pressure on tech’s weighting in the broader stock market.


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