ETF Performance Review: A Year of Ups and Downs
Semiconductor Sector Shines Bright
The year 2024 was a remarkable one for the semiconductor sector, with the VanEck Semiconductor ETF (SMH) surging an impressive 40.4% year to date as of December 23. This phenomenal growth can be attributed to the massive investments made by technology companies in artificial intelligence (AI) infrastructure development, leading to a significant increase in demand for chips used in AI applications, cloud computing, and other advanced technologies.
Tech and Internet Sectors Follow Close Behind
The technology sector’s momentum was further fueled by the growth of the internet sector, with the First Trust Dow Jones Internet Index Fund (FDN) rising 32.5% and the U.S. Global Jets ETF (JETS) climbing 31.9%. The post-pandemic recovery played a significant role in boosting these sectors, as people increasingly turned to online services and air travel.
Software and Insurance Sectors Show Resilience
Meanwhile, software companies demonstrated remarkable resilience throughout the year, with the iShares Expanded Tech-Software Sector ETF (IGV) gaining 26%. The insurance sector also performed well, with the SPDR S&P Insurance ETF (KIE) delivering returns of 25.5%, thanks to higher interest rates that boosted investment income. Regional banks, represented by the SPDR S&P Regional Banking ETF (KRE), rose 17.3% as rising interest rates improved their profitability.
Challenges Faced by Solar, Energy, and Agricultural Sectors
On the other hand, solar and clean energy ETFs struggled in 2024, with the Invesco Solar ETF (TAN) plummeting more than 37% and the Invesco WilderHill Clean Energy ETF (PBW) falling nearly 32%. Traditional energy sectors also faced challenges, as the VanEck Oil Services ETF (OIH) declined 16.4% due to lower oil prices and decreased demand for drilling. Agricultural sector ETFs, such as the VanEck Agribusiness ETF (MOO), dropped 15.5% amid fluctuating commodity prices and weather-related challenges.
Metals and Mining, Biotechnology Sectors Experience Decline
The metals and mining sector, represented by the SPDR S&P Metals & Mining ETF (XME), posted a 5.3% decline, while the biotechnology sector, tracked by the iShares Biotechnology ETF (IBB), dipped 2.5%. These sectors faced significant headwinds in 2024, leading to a decline in their performance.
Overall, 2024 was a year of mixed fortunes for ETFs, with some sectors experiencing remarkable growth while others struggled to stay afloat. As we move into 2025, investors will be keenly watching the trends that emerge and adjusting their portfolios accordingly.
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