4 Top-Performing Sector ETFs of 2021

Wall Street has rallied hard this year on vaccine distribution, a prolonged period of easy money policy and fiscal stimulus. Stronger-than-expected earnings are the major catalysts at present. The Q2 earnings picture has been robust, with aggregate total quarterly earnings on track to reach a new all-time record. The strength has been palpable on the revenue side.

Tech stocks were mainly responsible for Wall Street’s monumental achievement. The S&P 500 Index is up 19.4% this year and has gained 30.8% past year. Against this backdrop, investors might be interested to know which sectors have been the winners this year. According to a CNBC article, financials, real estate, communication services and energy are the top four sectors of the year (read: Guide to the S&P 500 ETF Investing).

Winning Sectors

Financials – iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI) – Up 36.9% YTD

Banking stocks were beaten down in the peak of the pandemic as fears of higher defaults at the household and corporate levels hit the space hard. Banking stocks offer value now. These are highly cyclical being vulnerable to the changes in economic conditions and policies. Moreover, taper talks are doing rounds, which could steepen the yield curve. All these factors have benefited financial stocks this year (read: Time to Tap Cyclical Sector ETFs?).  

Real Estate – Nuveen Short-Term REIT ETF (NURE) – Up 33.5% YTD

The real estate corner of the broad market has been an area to watch lately given the market volatility that has returned the lure for the rate-sensitive sectors. This is because these often act as a safe haven in times of market turbulence and concurrently offer higher returns due to their outsized yields. Additionally, rising rents due to shortage of homes and rising inflation are driving the sector higher (read: 5 Reasons Why REIT ETFs Are Surging).

Communication Services – Invesco S&P 500 Equal Weight Communication Services ETF (EWCO) – Up 23.2% YTD

Fears of the spread of COVID-19 Delta variant are pushing up demand for the tech and communication stocks as these are the winning ones when people stay at home. The new lifestyle continues to boost various corners of the technology sector, ranging from enterprise cloud computing, cyber security, remote communications, video gaming and e-commerce to online payments. The fund EWCO has exposure to stocks like Charter Communications (5.35%), Netflix (5.21%) and Facebook (5.06%).

Energy – Invesco Dynamic Energy Exploration & Production ETF (PXE) – Up 52.7% YTD

Energy stocks offered great returns in the first half of 2021. The coronavirus vaccine rollout is gradually helping to control the spread of the outbreak across the globe and this has benefited the energy sector. Global oil demand is set to return to pre-pandemic levels by the end of 2022, rising 5.4 mb/d in 2021 and a further 3.1 mb/d next year, per the June report published by the International Energy Agency.

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