6 Smart-Beta ETF domains that topped the S&P 500 in 2021
The “smart beta” approach has become a common theme for the ETF world with regular product introductions based on factors or themes. Put simply, the time is over for regular or market-cap-weighted ETFs, as products need to be dynamic and time-sensitive in a rapidly changing investment space.
As the name suggests, this approach requires a strategic approach to portfolio construction rather than a market capitalization approach. The approach exploits market anomalies by incorporating additional selection criteria to market capitalization or rule-based indices. This allows them to generate returns above the market. Many people call it an improved investment strategy.
Overall, 2021 has been bullish for stocks. The indices are reaching record levels. The S&P 500 (up 25%) established itself as the best of the major US indices, followed by the Dow Jones (up 16.8%), the Nasdaq Composite (up 20.4%) and the Russell 2000 (up 12.5%) (as of December 22, 2021).
Key events were record inflation, the start of quantitative easing by the Fed from November, the likelihood of a rate hike in 2022, President Biden’s $ 1.2 trillion infrastructure bill. , COVID-19 threats (first the Delta variant and now Omicron) and hopes for more COVID-19 therapies from Merck and Pfizer.
In addition, global economies oscillate between economic reopening and closures, depending on COVID scenarios, with Europe facing new threats in winter. Against this background, investors may be interested to know which areas of the Smart Beta ETF have made the most of the ongoing recovery caused by the virus and have managed to largely beat the wider market.
First Trust Natural Gas ETF FCG (+ 93.0%) and Invesco Dynamic Energy Exploration and Production ETF PXEs (up 89.1%) are the biggest winners in this segment. 2021 can easily be seen as a year of return for energy. Oil prices have increased about 50% this year. The rally was boosted by the economic reopening, which called for higher demand. OPEC and non-OPEC partners, a group collectively referred to as OPEC +, also maintained a protocol to gradually increase oil supplies.
The latest variant of COVID-19 Omicron is apparently less virulent than previously feared, reducing the chances of further blockages. The fact that Iranian nuclear talks ran into a problem, delaying the return of Iranian crude supplies, also pushed up oil prices.
Elements Rogers International Commodity Index-Energy Total Return ETN RJN (+ 55.8%) and iPath Series B Bloomberg Softs Subindex Total Return ETN (JJS) (up 47.2%) emerged winners in the space. The year 2021 will long be known for high inflation. Pent-up demand and supply chain disruptions have pushed up commodity prices. Most industrial metals and agricultural commodities have seen an upward price trend. Energy-related commodities deserve special mention.
Invesco S&P 500 Equal Weight Real Estate ETF EWRE is up 43.6% this year. Real estate as a sector has great potential at the current level. In an environment of rising inflation, real estate stocks or REITs are good bets. Both the resale value of the property and the rental income increase with price inflation.
Small cap value
Invesco S&P SmallCap 600 Pure Value ETF RZV has grown 41.1% year-to-date. Much of 2021 has been plagued with high inflation and concerns about rising rates. Such a backdrop is ideal for small cap value stocks. Indeed, smaller companies can easily adjust their supply chain due to the smaller scale of operations and value stocks benefit from a rising rate environment.
First Trust Nasdaq Bank FTXO ETF (+ 40.2%), Invesco KBW Bank ETF (KBWB) (up 38.6%) andFirst Trust Financials AlphaDEX Fund (FXO) (up 36%) are the best in this space. Occasional upward trends in rates, a convincing valuation, an economic reopening and better financial health of businesses and households have favored the segment.
ETF Pacer US Cash Cows 100COWZ (+ 39.2%) and Pacer US Small Cap Cash Cows 100 ETF (CALF) (+ 34.6%) are the big winners in space. This is a value-centric area. Many investors are betting big on cash-rich companies because the cash cushion helps resist volatility. COWZ provides exposure to large and mid cap US companies with high free cash flow returns while CALF consists of small cap stocks.
Want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click to get this free report
First Trust Natural Gas ETFs (FCGs): ETF Research Reports
Invesco S&P SmallCap 600 Pure Value (RZV) ETF: ETF Research Reports
Invesco S&P 500 Equal Weight Real Estate ETF (EWRE): ETF Research Reports
First Trust NASDAQ Bank ETFs (FTXO): ETF Research Reports
Invesco Dynamic Energy Exploration and Production ETF (PXE): ETF Research Reports
ETF Pacer Us Cash Cows 100 (COWZ): ETF Research Reports
ITEMS related to Rogers Intl Commodity Index Energy TR (RJN): ETF Research Reports
To read this article on Zacks.com, click here.
Zacks investment research