Energy ETFs were the big winners of 2021 as the relaxing of lockdown restrictions over the first half of the year boosted commodity stocks which had taken a battering over 2020.

While volatile in places, the bounce back was sustained throughout the year as oil prices peaked at $83.54 a barrel in October, up from $54.77 at the start of the year, as shortages hit the global economy.

This led to a dramatic rise in inflation, with the US consumer price index rising 6.8% for the 12 months ending November, its highest point since 1982.

However, energy ETFs experienced strong returns as a result, accounting for seven of the top 10 performers over 2021 with investors, who backed rising energy prices as the economy stuttered back into action, handsomely rewarded across 2021.

An additional inflationary factor was the shortage of semiconductor components, subsequently leading to strong share price performances of manufacturers around the globe as they battled to keep up with demand.

Private equity ETFs also continued their strong gains for the year driven by the pandemic disruption and several large firms listing.

Energy is king

In a year where the energy crunch had a serious impact on the global economy it is unsurprising the performance charts were dominated by energy ETFs.

In October, oil prices rose to their highest point since 2014 as rising demand collided with a fundamental under investment in commodities fuelled strong sector performance.

Topping the chart as the best performing ETF of 2021 is the iShares Oil & Gas Exploration & Production UCITS ETF (SPOG) which returned 73.4% over the past 12 months.

SPOG has been an outlier all year and made most of its returns in H1, returning 51.6% to the end of June, driven by its largest holding natural gas company ConocoPhillips (10%) which has returned 80.6% over 2021.

Other top holdings include EOG Resources (9.9%) and Canadian Natural Resources (9.1%) returning 78.9% and 73%, respectively.

SPOG, which has 64.1% of its index tracking US stocks, was followed by several ETFs tracking the US energy market.

The iShares S&P 500 Energy Sector UCITS ETF (IESU) and the SPDR S&P US Energy Select Sector UCITS ETF (SXLE) returned 57.6% and 56.3% over the same period, respectively, rounding off the top three for the year.

These were followed by the Invesco US Energy Sector UCITS ETF (XLES) which returned 54.8% and the Xtrackers MSCI USA Energy UCITS ETF (XSEN) which gained 54.6%.

Finishing off the top 10 were the Xtrackers MSCI World Energy UCITS ETF (XD10) and the iShares MSCI World Energy Sector UCITS ETF (5MVW) returning 44.2% and 44% respectively.

The commodity was not immune to volatility over the year though, with oil prices collapsing to $69 a barrel, 20% down from its October high, however, investors saw it as a buying opportunity.

It’s also worth noting that the impressive 12-month performance is no barometer of future returns, with all the energy ETFs featuring in the top 10 achieving negative returns over five years.

Private equity shoots the lights out

Breaking into the top performers of last year are two private equity ETFs that have delivered impressive returns over the 12 months.

The £424m Xtrackers LPX Private Equity Swap UCITS ETF (XLPE) was the fourth-best performing ETF over 2021, returning 54.8% and booking impressive flows of $134.6m over the period.

This has been driven by the strong performance of its top two holdings, the Warren Buffett-led Berkshire Hathaway (8.4%) and CVS Health Corp (6.8%) which have returned 31.9% and 46.7%, respectively. 

XLPE was followed by the $1.2bn iShares Listed Private Equity UCITS ETF (IPRV) which returned 44.8% in the 12 months to January with flows totalling $344m for the year.

Blackstone, the second largest constituent of IPRV with a 7.7% weighting, boasted its distributable earnings more than doubled during Q3 and has seen its share price rise by 106% in 2021.

The two ETFs have looked to capitalise on the huge gains made by private equity firms following the onset of the COVID-19 pandemic, with more disruptive companies gaining market share and private equity and venture capital firms seeking listings.

Demand boosts semiconductor ETFs

Rounding off the top ten best performing ETFs is the VanEck Vectors Semiconductor UCITS ETF (SMGB), Europe’s first semiconductor ETF.

Launched in December 2020, SMGB returned 48% over 2021, riding the volatility seen across the semiconductor industry with supply shortages accelerated by the COVID-19 pandemic having a knock effect across the global economy.

The ETF tracks the MVIS US Listed Semiconductor 10% Capped index made up of 25 holdings, with its top holding, Dutch semiconductor manufacturer ASML Holding accounting for 10% of the ETF, returning 74% year to date.

Other top holdings predicably include Taiwan Semiconductor Manufacturing Company (10%) and Nvidia Corp (9.4%) which saw their share price rise by 14.3% and 131.2% over 2021.

Investors have been quick to jump on the strong performance of the product, with SMGB recording $654.5m inflows over the past 12 months, taking its AUM to $854m.

Performance has been mirrored in the US where the theme is much more prevalent. VanEck’s US counterpart, the VanEck Semiconductor ETF (SMH) has returned 44.3% over the same period, narrowly following the Invesco Dynamic Semiconductors ETF (PSI) and the iShares Semiconductor ETF (SOXX) which returned 46.4% and 46%, respectively.

SMGB’s strong performance has inspired other issuers to launch similar ETFs on the continent. In August, BlackRock launched the iShares MSCI Global Semiconductors UCITS ETF (SEMI) amassing $212m in assets and returning 15.4% since inception.

It comes as some market commentators anticipate a big year for the semiconductor industry in 2022 as supply and demand constraints continue to be a key factor driving performance.

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