The democratization of asset classes has been one of the main driving forces behind the ever-expanding ETF universe. In fact, with the U.S. bull market recently turning five years old there has been a variety of funds crossing major milestones, both in terms of assets under management as well as age [see also How Markets React To Major World Events].
Thus far we have reviewed how the following asset classes have performed since the market bottom in 2009:
- Single-Country Emerging Market ETFs
- Currency ETFs vs. Their Stock market
- Sector ETFs
- Real Estate ETFs
Today, we’re continuing with the theme of taking a stroll down memory lane, except we’re not stopping at the 2009 lows; instead, we’re reviewing the performance of State Street’s Sector SPDRs lineup, which are among the oldest and most well-known ETFs on the market, since they debuted in December of 1998 [see ETF Performance Visualizer].
Sector SPDRs Performance Review Since Inception
The Sector SPDRs have been around for nearly 15 years, and as such, their performance since inception holds some noteworthy insights seeing as how they have survived two major crashes on Wall Street. Please note that the returns below are cumulative and based on adjusted-monthly closing prices spanning the end of December 1998 through May 2014.
Some of the key takeaways from this performance review are:
- Energy (XLE) has been a runaway leader following the tech bubble and the most recent financial crisis; this sector boasts an impressive track record and has posted by far the biggest gains since inception, outpacing the next closest contender, the Materials (XLB) sector, by a margin of 200%.
- Technology (XLK) was the runaway leader leading up the Internet bubble peak in 2000; since then, this sector has struggled to post impressive gains and it has remained one of the biggest laggards alongside the Financials (XLF) sector, even after the housing bubble bottom in 2009.
- Staples (XLP) and Utilities (XLU) lagged behind from the start as investors jumped into tech stocks in lieu of defensive names amid the euphoric environment leading up to the 2000 peak on Wall Street. As expected, both of these sectors didn’t fall nearly as much as other corners of the market during the 2008 meltdown, and likewise, they haven’t rallied nearly as much since the recent bottom.
- The Discretionary (XLY), Industrials (XLI), and Health Care (XLV) sectors have each taken the “middle road” so to speak during the last two booms and busts on Wall Street; these sectors haven’t been able to match the stellar returns of Energy equities, but they have also fared a lot better than the two culprits behind the last two bubbles.
The Bottom Line
Cyclicality is one of the fundamental pillars of financial markets, which is why it pays to study the markets’ history; not because you may uncover some pattern that repeats, but because you can gain valuable fundamental insights about why things played out the way they did. For example, just by looking at the above chart you have no way of knowing why technology led the way prior to the 2000 peak or why financials crashed the hardest during the 2008 meltdown. The biggest takeaway here is that charts only tell half the story, which is why prudent investors need to always do their homework when formulating a strategy and take a good look under the hood of an ETF before opening a position.
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Disclosure: No positions at time of writing.