The majority of exchange-traded funds (ETFs) realized gains in the second quarter of 2021. The biggest gains were spread across categories. Quarterly gains in excess of 20% were realized by domestic, sector and international ETFs.

Outside of cannabis-related ETFs, the losses realized by the worst-performing ETFs were relatively small. Though some ETFs did fall in value, as can be seen on the performance table, they only accounted for a small percentage of the overall ETF universe.

Large-Cap Growth ETFs Deliver Stellar Returns

SoFi Social 50 (SFYF), was the top-performing ETF in the second quarter of 2021, with a gain of 33.7%. SoFi Social 50 also leads all ETFs on a one-year basis with an annual return of 111.4%. The ETF holds a concentrated portfolio, with its 10 largest holdings accounting for nearly 50% of the total allocation. Among its largest holdings are Tesla Inc. (TSLA) and meme-stock AMC Entertainment Holdings Inc. (AMC).

Overall, large-cap growth ETFs dominated the top domestic performers in the second quarter. The remaining four top domestic performers all take a broader approach to targeting growth stocks than SoFi Social 50. Though the names may sound similar, the funds are not the same. For example, the iShares Morningstar Growth ETF (ILCG) has 511 portfolio holdings, whereas the Invesco S&P 500 Pure Growth ETF (RPG) has 74.

Mid-Cap Growth ETFs Falter, Relatively Speaking

SPDR S&P Kensho New Economics Composite (KOMP) was the worst-performing domestic equity ETF in the second quarter, though its loss was just 1.0%. This was the only domestic ETF to realize a loss for the second quarter. Despite the recent drop, the ETF’s one-year gain is a stellar 81.3%. The ETF’s portfolio consists of 34% invested in information technology companies, while another 23% is industrial stocks. About one-quarter of the portfolio is allocated to foreign companies.

The other bottom domestic funds target mid-cap and small-cap stocks. The “bottom” designation is relative. The second-quarter returns for these funds ranged from 0.8% to 1.9%.

Energy ETFs Power Up Sector Returns

Invesco S&P SmallCap Energy (PSCE) was the best-performing sector ETF in the second quarter, with a gain of 27.4%. It also has the second-highest one-year return with a gain of 140.9%. The ETF consists solely of energy stocks, with almost half of the portfolio pertaining to the oil and gas exploration and production sub-industry. Invesco S&P SmallCap Energy is concentrated, with the 10 largest holdings accounting for 63% of its portfolio.

The other four top-performing sector ETFs for the quarter also target the energy sector. Each realized returns greater than 18%. Two target master limited partnerships (MLPs): UBS ETRACS Alerian MLP ETN Series B (AMUB) and Global X MLP ETF (MLPA). UBS ETRACS is an exchange-traded note (ETN). ETNs are debt instruments and therefore come with the risk of defaulting should their portfolio falter.

Cannabis ETFs Incur Losses

The two worst-performing ETFs for the quarter targeted the emergent cannabis industry. Global X Cannabis (POTX) fell by 13.3% and Cannabis ETF (THCX) fell by 12.9%. Of the two, Global X Cannabis is far more concentrated, with 73% of its portfolio allocated to just 10 stocks. Canopy Growth Corp. (CGC) accounts for more than 10% of Global X Cannabis’ portfolio, versus 6% of Cannabis ETF’s portfolio.

Not all energy ETFs fared well, as Defiance Next Gen H2 (HDRO) lost 10.1% of its value last quarter. The ETF targets hydrogen companies.

International: Latin American ETFs Excel

The three best-performing international ETFs for the second quarter all target Latin American companies, particularly those based in Brazil. Those ETFs include iShares MSCI Brazil Small-Cap (EWZS), iShares MSCI Brazil (EWZ) and Franklin FTSE Brazil (FLBR). Each follows a different index and has varying levels of portfolio concentration. The top-performing fund, iShares MSCI Brazil Small-Cap, has a portfolio that is well-diversified across multiple sectors, with its largest holding of 22.2% in the consumer discretionary sector.

Conversely, four out of the five bottom international funds for the quarter invest in Asian companies. Global X MSCI China Financials (CHIX) was the worst-performing fund, with a loss of 4.0%. It is a non-diversified fund, with holdings exclusively in the financials sector. The quarter’s second-worst international ETF, iShares MSCI Malaysia (EWM), also has the worst one- and five-year returns.

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