The best and worst-performing ETF sectors of 2020

We name the top 10 and bottom 10 sectors, and pick out individual ETF winners and losers. 

One of the surest ways for an investor to make money in 2020 was to have exposure to US larger-company tech and growth stocks. While the global market indices are now positive for the year, this particular subset of stocks saw some of the strongest performance.

This is evident in the average performance of the Morningstar US Equity Large Cap Growth sector. On average, ETFs in this sector returned 43% in the first 11 months of the year. All the ETFs found in this sector track the Nasdaq 100 index, the largest 100 companies in the US tech index. For instance, the InvescoEQQQ NASDAQ-100 ETF GBP (LSE:EQQQ), Lyxor Nasdaq 100 ETF (LSE:NASD) and Amundi IS Nasdaq-100 ETF USD (LSE:ANXU) all returned 41%.

The second-best performance came from the Korea Equity sector, with an average return of 23%. While South Korea was one of the first countries outside China to experience an outbreak of coronavirus, its government proved effective in containing the spread, allowing the country to stage a strong economic recovery.

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Most ETFs in the sector provided a return roughly in line with the average. However, the best performer by a small amount was the Franklin FTSE Korea UCITS ETF GBP (LSE:FLRK), with a return of 24.1%. In contrast to the other ETFs in the sector, this ETF tracks the FTSE Korea index, not the MSCI Korea index.

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Strong performance also came from the Precious Metals Sector Equity ETFs, with an average return of 16.8%. This was principally the result of the strong rally in 2020 for gold, driven by low interest rates and general fear among investors.

Perhaps expectedly in a year defined by a pandemic, Healthcare Sector Equity ETFs also did well, returning an average of 12.8%. Within this sector, however, there were some star performers.

The best-performing ETF was the L&G Healthcare Breakthrough ETF (LSE:DOCT), with a return of 49.1%. This was followed by the iShares Healthcare Innovation UCITS ETF (LSE:DRDR), with 38.9%, the HAN-GINS Indxx Healthcare Innovt ETF Acc (LSE:WELL) returning 19.6% and the iShares Nasdaq US Biotech ETF USD Acc GBP (LSE:BTEK), up 19.5%.

What the top four healthcare ETFs have in common is that they mirror indices that aim to track new and innovative parts of the healthcare sector. Inevitably that means they have holdings that can also be defined as growth and tech stocks, which explains their above-average performance this year.

The Consumer Goods and Services Sector ETFs also did well, with an average return of 11.5%. One ETF in this sector, however, stood out: the Xtrackers MSCI USA Consumer Disc ETF  (LSE:XUCD). The ETF provided a return of just over 43%. This was largely driven by its exposure to two of the year’s best-performing stocks: Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA).

Another strong sector was Japan Equity, with ETFs returning an average of 8.3%. As with South Korea, the consensus view is that Japan has done a better job than European and North American countries of controlling Covid-19.

In addition, investors have also become more bullish about the country following the successful transition of power from Shinzo Abe to Yoshihide Suga. While Abe had been a favourite of investors, Suga is expected to largely follow in his footsteps.

10 best-performing ETFs sectors

Source: Morningstar. Year-to-date returns of passive funds in Morningstar sectors, as at November 30. 

When it comes to the worst performers, Latin America Equity tops the charts, with a collective loss of 26.6%.

The losses seem to have been driven by the particularly bad performance of Brazilian equities. Within the sector, ETFs tracking the regional MSCI Latin America index performed slightly better than average. For example, the Lyxor MSCI EM Latin America ETF USD (LSE:LTMU) lost just over 24%.

In contrast, those tracking the MSCI Brazil index lost more than the average. For instance, the HSBC MSCI Brazil ETF GBP (LSE:HBRL) is down by around 29%. Brazilian equities dominate the region, with Brazil ETFs being the only country-specific ones found in the Latin America Equity sector. Brazilian stocks account for more than 60% of the MSCI Latin America index.

Unsurprisingly, Energy Sector Equity ETFs saw some of the worst losses, with the sector average down by 21.1%. Those losses were mostly the result of ETFs with exposure to oil and gas stocks – the demand for which plummeted this year in the face of lockdowns and economic contraction.

For instance, the SPDR MSCI World Energy ETF (LSE:WNRG) lost around 40%. However, the few ETFs in the index focused on renewables experienced impressive gains. The iShares Global Clean Energy ETF (LSE:INRG), for example, has returned around 100%.

The poor performance of oil and gas this year was also reflected in the poor performance of the European emerging market sector, which lost an average 21.1%. The sector is dominated by Russia-focused ETFs, which in turn are dominated by big Russian oil and gas producers.

Another poor-performing sector was the so-called Trading Tools, with a collective loss of 16.6%. This sector is composed of leveraged and inverse ETFs. Leveraged ETFs provide the daily return of the underlying index multiplied by a certain amount on a daily basis. As a result, such ETFs can incur huge losses when markets are volatile.

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Elsewhere, UK Large Cap Equity experienced generally poor performance, with an average loss of more than 14%. This sector is mostly made up of ETFs tracking either the FTSE 100, FTSE All-Share or the MSCI United Kingdom index. Both the HSBC FTSE 100 ETF (LSE:HUKX) and iShares Core FTSE 100 ETF GBP (LSE:ISF) returned roughly in line with the average.

The worst performance in this sector came from ETFs focused on producing income. For example, the WisdomTree UK Equity Income ETF (LSE:WUKD) and iShares UK Dividend ETF GBP Dist (LSE:IUKD) both lost more than 20%. 

It was also a poor year for UK Equity Mid Small Cap, which lost an average of 10.4%. This sector is mostly composed of ETFs tracking the FTSE 250 index.

Finally, Financials Sector Equity ETFs generally performed poorly. Banks are, on the whole, cyclical stocks, doing better or worse depending on the economic outlook. Banks have also suffered as a result of central banks taking interest rates even lower this year.

10 worst-performing ETFs sectors

Source: Morningstar. Year-to-date returns of passive funds in Morningstar sectors, as at November 30. 

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.