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Top Sector ETFs of 2018

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As we approach the end of 2018, it’s time to look back at the investing areas of 2018 that put up a good show amid broader market uncertainty. The S&P 500 has lost about 2.2% so far this year while the Nasdaq gained only 0.2%. The Dow Jones has retreated 1.6% in the said time frame (as of Dec 10, 2018).

Rising rates in the United States, almost a year-long U.S.-Sino trade war tensions and slowdown in the Euro zone and Japan hurt the markets in 2018. However, some sectors proved their mettle amid adversities. Below we highlight those winners.

Energy

In the energy ETF spectrum, natural gas products shot up this year with United States Natural Gas (UNG - Free Report) andUnited States 12 Month Natural Gas (UNL - Free Report) adding about 51.8% and 23.9% in the year-to-date frame (as of Dec 10, 2018). After remaining flat for almost the whole year, natural ETFs spiked from November on higher heating demand in winter. The cold snap boosts electricity demand across the region, increasing demand for natural gas. Also, inventories are well below the 5-year average for this time of the year. Both factors have boosted natural gas ETFs lately (read: Best and Worst ETFs of November).  

Healthcare

The sector is viewed as a defensive one, which helped it to shine amid market uncertainty emanating from trade war tensions between the United States and China.

President Trump’s announcement of the drug plans in May was in the best interest of pharma companies. The drug plans will likely put pressure on U.S. trading partners, forcing them to pay more for medicines. The U.S. health care supply chain is consolidating fast, with deals across the industry ranging from insurers, pharmacies to drug distributors.

If these were not enough, the tax reform has proved to be a big boon to the sector. Per an article published on Reuters, domestically geared health care companies that focus on services are likely to benefit from a lower tax rate and generate superior cash flows.

As a result, ETFs like Invesco S&P SmallCap Health Care ETF (PSCH - Free Report) (up 21.3%), iShares US Medical Devices ETF (IHI - Free Report) (up 17.6%), iShares US Healthcare Providers ETF (IHF - Free Report) (up 18.1%) and SPDR S&P Health Care Services ETF (XHS - Free Report) (12.8%) have gained considerably in the year so far (read: Trump's Presidential 2 Years: Must-See ETF Areas).

Technology

Though tech stocks suffered a lot at the beginning of the year on Facebook’s (FB) data debacle and in the months of October and November on overvaluation and rising rate concerns, the space has managed to stay afloat. Tech titans hoard huge cash overseas and benefited the most from Trump's tax reform policy. Also, increasing demand for emerging technologies helped the sector.

SPDR S&P Internet ETF (up 21.9%), Invesco Dynamic Software ETF (up 21.2%) and iShares North American Tech-Software ETF (IGV - Free Report) (up 15.2%) are some of the top-performing technology ETFs (read: Tech ETFs to Give Thanks Amid Bloodbath).

Real Estate

As the broader market turned tumultuous in the fourth quarter and concerns about global growth started raising head, long-term U.S. treasury yields began to slip. This helped rate-sensitive sectors like real estate. Also, improving balance sheet and declining exposure to rising rates and the inflation-protected status led some real estate sector ETFs to outperform. U.S. Diversified Real Estate ETF PPTY has gained11.9% this year so far (read: Real Estate ETFs at One-Month High: Here's Why).

Utilities

As long-term yields skidded, another rate-sensitive sector, utility, benefited a great deal. Investors should note this safe-haven sector has received a boost from rising trade tensions in 2018. Invesco S&P 500 Equal Weight Utilities ETF (up 11.1%), Invesco DWA Utilities Momentum ETF (PUI - Free Report) (up 13.8%) and First Trust Utilities AlphaDEX ETF (FXU - Free Report) (up 10.2%) are some of the top-performing utilities ETFs of the year so far (read: Utility ETFs Gain Amid Stock Market Decline).

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