The eye-catching numbers at the end of the first quarter of 2021 for exchange-traded funds (ETFs) are their annualized one-year returns. The top one-year performers in sector, international and domestic ETF categories trace the economic recovery from the beginning of the coronavirus pandemic in the first quarter of 2020. Many top funds posted triple-digit one-year returns at the end of March 2021.

The returns for the quarter also show investors moving their money as they see economies recovering. The fund categories with high returns and those with low returns this quarter represent broad economic rotations.

There is optimism among U.S. economists for the country’s quick recovery, though there is still much global uncertainty. For the last three months, top- and bottom-performing domestic ETFs outperformed top- and bottom-performing international ETFs.

Sector

Sector ETFs accounted for all of the top five performers for the first quarter. Leading all ETFs was a fund focused on the growing global cannabis industry: Global X Cannabis ETF (POTX), with a return of 61.6%. The fund follows the performance and yield of the Cannabis Index, which consists of the largest companies currently deriving most of their revenue from related cannabis business and some of the largest companies expected to do so shortly.

The Cambria Cannabis ETF (TOKE) was also a top sector performer with a return of 39.9%. These two ETFs’ returns for the quarter represent a similar trend to the surge in clean energy ETFs in 2020—they are related to policy initiatives. The cannabis industry continues to gain ground in the U.S. and globally, and policymakers have publicly expressed a desire to expand legalization at the federal level in the U.S.

Two energy ETFs were among the top-performing sector ETFs for the quarter, marking a shift from the category’s general bottom performance in 2020. The Invesco S&P SmallCap Energy ETF (PSCE) had a return of 43.2% and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) had a return of 39.6%.

The bottom-performing sector ETFs also marked shifts in investing from 2020. Three precious metals ETFs composed the bottom five sector ETFs: Sprott Junior Gold Miners ETF (SGDJ), iShares MSCI Global Silver & Metals Miners ETF (SLVP) and Sprott Gold Miners ETF (SGDM) had losses of 17.8%, 13.8% and 12.0%, respectively. Funds and stocks related to this sector did well last year as investors retreated into precious metals to offset low interest rates and bond yields.

International

Among the top equity ETFs in the first quarter, international funds had the smallest returns. The WisdomTree Japan Hedged Equity ETF (DXJ) led international stock ETFs with a return of 12.5%, followed by the iShares MSCI China Small-Cap ETF (ECNS) with a return of 12.2%. Three China-region ETFs were among the top five.

The WisdomTree Japan Hedged Equity ETF gives broad exposure to Japanese dividend-paying companies with an exporter tilt while mitigating exposure to currency fluctuations between the U.S. dollar and the Japanese yen. It follows the WisdomTree Japan Hedged Equity Index.

Two ETFs following Chinese tech and communications companies were the worst-performing international ETFs for the first quarter: the KraneShares CICC China 5G & Semiconductor ETF (KFVG) and the Global X MSCI China Information Tech ETF (CHIK), with losses of 12.5% and 10.8%, respectively. Recently, the Chinese government has increased its scrutiny of the country’s tech companies, posing the biggest change to this market.

Brazil also appeared among the bottom international ETFs as it struggles to contain the coronavirus. The iShares MSCI Brazil ETF (EWZ) and Franklin FTSE Brazil ETF (FLBR) were down 9.9% and 9.7%, respectively.

Domestic

For U.S. equity ETFs, the first quarter marked a significant shift toward the previously underperforming value factor, specifically funds following small-cap strategies. Four of the top five domestic ETFs are value-oriented and four are small-cap-based.

Domestic ETFs are led by the Avantis U.S. Small Cap Value ETF (AVUV), with a return of 27.3%. This ETF was launched in September 2019 and follows the Russell 2000 Value index. It also appears in the top domestic funds by one-year annualized returns, with a gain of 135.2%. The Invesco RAFI Strategic US Small Company ETF (IUSS) also made the list of top performers for the quarter and on a one-year basis. The small-cap blended strategy’s first-quarter return is 24.6% and its one-year annualized return is 118.1%.

Growth-based ETFs made up the bottom performers for the quarter, primarily large-cap strategies. Large-cap growth fund ERShares Entrepreneur ETF (ENTR) lost 7.7% as the worst domestic fund, followed by the iShares Morningstar Mid-Cap Growth ETF (IMCG) with a loss of 1.3% and the iShares Morningstar Small-Cap Growth ETF (ISCG) with a loss of 1.1%.

Best- and Worst-Performing Exchange-Traded Funds