Expectations at the start of the year were for a recession, and expensive shares to underperform cheap ones, due to falls in profits linked to rising interest rates and weaker economic growth.
However, the best ETFs of the year were clustered around technology as a theme, and the worst ones generally invested in China, which was tipped by many as a winning sector at the start of the year due to a forecast of economic rebound following restrictions linked to the pandemic.
Clean energy was also a stand-out losing sector as sentiment continued to deteriorate after a tough 2022.
We run through the best and worst 20 ETFs of the year. The total return data in sterling is up to 13 December, and the source is FE Analytics.
Best ETFs: tech and crypto the clear winners
Of the 20 best ETFs for the year, 18 of the 20 had a technology theme.
The stand-out investment area was cryptocurrency and blockchain-related assets, linked to the 140% rise in the value of bitcoin so far in 2023.
Rather than being a hedge against inflation, crypto prices have been more closely linked to interest rates, with rising rates bad for prices and falling rates positive for the asset class.
While investors do not have a London-listed ETF that tracks the price of bitcoin, there are plenty of funds that own assets that are highly correlated with crypto prices.
The best ETF of 2023 was the HANetf Grayscale Future of Finance UCITS ETF, which has risen 87%, followed by HAN ETC Group Digital Assets & Blockchain Equity UCITS ETF, which is up 83%.
Other technology themes that emerged as winners in 2023 include cybersecurity, artificial intelligence, the metaverse, and cloud computing
WisdomTree Cybersecurity UCITS ETF rose 53%, while L&G Artificial Intelligence UCITS ETF was up 44.5%. First Trust Cloud Computing UCITS ETF advanced 39% and HAN ETC Group Global Metaverse UCITS ETF gained 51%.
Broader tech trackers also did well, with iShares S&P 500 Information Technology Sector UCITS ETF delivering an impressive 48.5% gain, and Invesco EQQQ Nasdaq 100 UCITS ETF adding 43%.
Tech shares were in the spotlight due to developments in artificial intelligence (AI). Kick-started by OpenAI’s launch of ChatGPT just over a year ago, which uses “generative AI” to answer questions, help with computer programming, and even solve maths problems, investors became very excited about companies building AI software as well as computer-chip companies.
The uranium price has risen around 60% this year, partly because there was a rush to buy the nuclear reactor fuel from suppliers that are not based in Russia.
Polish shares were winners in 2023 because parliamentary elections were won by pro-European Union parties.
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|Total return 1 January to 13 December (%)
|HANetf Grayscale Future of Finance UCITS ETF
|HAN ETC Group Digital Assets & Blockchain Equity UCITS ETF
|WisdomTree Blockchain UCITS ETF
|WisdomTree Cybersecurity UCITS ETF
|HAN ETC Group Global Metaverse UCITS ETF
|iShares S&P 500 Information Technology Sector UCITS ETF
|HANetf Sprott Uranium Miners UCITS ETF
|Xtrackers MSCI USA Information Technology UCITS ETF
|SSGA SPDR S&P U.S. Technology Select Sector UCITS ETF
|L&G Artificial Intelligence UCITS ETF
|Xtrackers MSCI World Information Technology UCITS ETF
|SSGA SPDR MSCI World Technology UCITS ETF
|iShares NASDAQ 100 UCITS ETF
|Invesco NASDAQ-100 ESG UCITS ETF
|Invesco EQQQ Nasdaq 100 UCITS ETF
|WisdomTree Artificial Intelligence UCITS ETF
|First Trust Cloud Computing UCITS ETF
|First Trust Dow Jones Internet UCITS ETF
|iShares MSCI Poland UCITS ETF GBP
|Xtrackers MSCI World Communication Services UCITS ETF
Source: FE Analytics. Past performance is not a guide to future performance.
The losers: clean energy and China
Of the 20 worst-performing ETFs this year, eight invested in clean energy and shares related to decarbonising the economy, and 11 invested in China. One invested in Thai shares.
The bottom four ETFs all invested in clean energy: HANetf Electric Vehicle Charging Infrastructure UCITS ETF (down 48.7%), Invesco Solar Energy UCITS ETF (down 38.8%), iShares Global Clean Energy UCITS ETF (down 30.8%), and HAN Solar Energy UCITS ETF (down 30.5%).
Other clean-energy losers included First Trust Nasdaq Clean Edge Green Energy UCITS ETF and WisdomTree Recycling Decarbonisation UCITS ETF.
Renewable energy has had a tough year as interest rates rose, decreasing the appeal of companies that do not make a lot of money today. Moreover, renewable energy that generates a steady income by selling power to the grid became less appealing as bond yields rose, giving income investors more alternatives.
The worst China ETF was Invesco MSCI China Technology All Shares Stock Connect UCITS ETF (down 24.2%), followed by iShares China Large Cap UCITS ETF (down 19.8%) and Xtrackers FTSE China 50 UCITS ETF (down 19.7%).
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This year, China has battled deflation, a slowing economy, issues in its property sector, pessimism around its ageing population, and political interference in private companies.
Moreover, Indian shares performed strongly, which likely attracted capital destined for emerging market companies away from China.
But valuations are now cheap for Chinese shares, particularly those in the tech sector. Mark Hawtin, investment director at GAM Investments, says that the “wild card” for disruptive growth will be China, where he notes that valuations have sunk to “ridiculously” low levels.
“Efforts to stimulate growth in the Chinese economy against a backdrop of ultra-low inflation should be rewarded with outsized returns in equities, and for this reason, we believe the macro and geopolitical risks are more than priced in,” he said.
|Total return 1 Jan to 13 December (%)
|HANetf Electric Vehicle Charging Infrastructure UCITS ETF
|Invesco Solar Energy UCITS ETF
|iShares Global Clean Energy UCITS ETF
|HAN Solar Energy UCITS ETF
|Invesco MSCI China Technology All Shares Stock Connect UCITS ETF
|HAN S&P Global Clean Energy Select HANzero UCITS ETF
|Invesco Global Clean Energy UCITS ETF
|WisdomTree Recycling Decarbonisation UCITS ETF Unhedged
|Xtrackers MSCI Thailand UCITS ETF
|First Trust Nasdaq Clean Edge Green Energy UCITS ETF
|iShares China Large Cap UCITS ETF
|Xtrackers FTSE China 50 UCITS ETF
|Xtrackers Harvest FTSE China A-H 50 UCITS ETF
|iShares MSCI China A UCITS ETF
|Amundi MSCI China A UCITS ETF
|HSBC MSCI CHINA A UCITS ETF
|Invesco MSCI China All Shares Stock Connect UCITS ETF
|L&G ETFS-E Fund MSCI China A UCITS ETF
|Xtrackers MSCI China UCITS ETF
|HSBC MSCI China UCITS ETF
Source: FE Analytics. Past performance is not a guide to future performance.
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