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6 Smart-Beta ETF Areas That Topped S&P 500 in 2021

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The ‘smart beta’ approach has become a common theme for the ETF world with regular introductions of factor-based or theme-based products. Simply put, gone are the days for plain vanilla or market-cap weighted ETFs as products need to be dynamic and time-sensitive in the fast-changing investing space.

As the name suggests, this approach calls for a strategic take on portfolio construction rather than a market-cap oriented method. The approach helps to exploit market anomalies by incorporating additional selection criteria to the market cap or rules-based indices. This enables them to generate market-beating returns. Many people call this an enhanced investing strategy.

Overall, 2021 has been upbeat for stocks. Indexes hit record-high levels. The S&P 500 (up 25%) emerged as the best among the key U.S. indexes, with the Dow Jones (up 16.8%), the Nasdaq Composite (up 20.4%) and the Russell 2000 (up 12.5%) trailing it (as of Dec 22, 2021).

Key events were record-high inflation, a start of the Fed QE tapering from November, the likelihood of rate hikes in 2022, President Biden’s $1.2-trillion infrastructure bill, COVID-19 threats (first Delta and now Omicron variant) and hopes for more COVID-19 therapies from the likes of Merck and Pfizer.

Plus, global economies seesawed between economic reopening and lockdowns, depending on COVID scenarios with Europe facing renewed threats in winter. Against this backdrop, investors may be interested in knowing which smart-beta ETF areas have made the most of the ongoing virus-inflicted recovery and managed to beat the broader market by a wide margin.


First Trust Natural Gas ETF (FCG - Free Report) (up 93.0%) and Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) (up 89.1%) are the maximum gainers in this segment. 2021 can easily be tagged as a comeback year for energy. Oil prices have gained about 50% this year. The rally was spurred by economic reopening, which called for higher demand. OPEC and non-OPEC partners, a group collectively referred to as OPEC+, also maintained a protocol of a gradual increase in oil supply.  

The latest COVID-19 variant Omicron is apparently less virulent than previously-feared, lessening chances of further lockdowns. The fact that the Iran nuclear talks hit a snag, deferring the return of Iranian crude supplies, also boosted oil prices.


Elements Rogers International Commodity Index-Energy Total Return ETN (RJN - Free Report) (up 55.8%) and iPath Series B Bloomberg Softs Subindex Total Return ETN (JJS) (up 47.2%) have emerged winners in the space. The year 2021 will be known for high inflation for long. Pent-up demand and supply chain disruptions have boosted commodity prices. Most industrial metals and agricultural commodities have staged an uptrend in prices.  Energy-related commodities deserve special mention.

Real Estate

Invesco S&P 500 Equal Weight Real Estate ETF (EWRE - Free Report) is up 43.6% this year. Real Estate as a sector holds strong potential at the current level. In a rising inflation environment, real estate or REIT stocks act as good bets. Both, resale value of the property and rental income, rise with price inflation.

Small-Cap Value

Invesco S&P SmallCap 600 Pure Value ETF (RZV - Free Report) has advanced 41.1% in the year-to-date frame. Much of 2021 has been saddled with high inflation and rising-rate worries. Such a backdrop is great for small-cap value stocks. This is because small companies can adjust their supply chain easily due to smaller scale of operations and value stocks are beneficiaries of a rising-rate environment.


First Trust Nasdaq Bank ETF (FTXO - Free Report) (up 40.2%),  Invesco KBW Bank ETF (KBWB) (up 38.6%) andFirst Trust Financials AlphaDEX Fund (FXO) (up 36%) are the toppers in this space. Occasional rising rate trends, compelling valuation, economic reopening and better financial health of both corporates and household have favored the segment.

Cash Cows

Pacer U.S. Cash Cows 100 ETF(COWZ - Free Report) (up 39.2%) and Pacer U.S. Small Cap Cash Cows 100 ETF (CALF) (up 34.6%) are the top winners of the space. This is a value-centric zone. Many investors are betting big on cash-rich companies as cash cushion helps to withstand volatility. COWZ provides exposure to large- and mid-capitalization U.S. companies with high free cash flow yields while CALF consists of small-cap stocks.