The technology sector has enjoyed a very strong start to the year. Exchange-traded funds (ETFs) targeting stocks in this sector were up a sizzling 28.8% during the first half of the year. Should these ETFs hold on to the majority of their gains in the second half of the year, 2023 would become the fourth year out of five with double-digit gains for the technology sector.

Volatility is a double-edged sword and investors in such funds felt the downside of it last year. The technology sector fell by 37.4% in 2022. In other words, the strong start to this year has not been enough to offset last year’s loss. Nonetheless, the returns have been high enough to nearly double the value of an investment made in the sector at the start of 2019 and held the entire time.

Even with its stellar performance, the technology sector has not consistently been the top performer. Equity energy led all ETF sectors in 2021 and 2022 as oil prices jumped in response to the world reopening from pandemic-related shutdowns, and then it rose further as Russia invaded Ukraine. Miscellaneous sector ETFs were the stars in 2020. Equity precious metals shone in 2019.

There has been no consistency among the bottom-performing sectors either. Utilities have lagged the most so far during 2023, with a year-to-date loss of 3.7%. Technology was at the bottom of the heap in 2022. The miscellaneous sector, which includes clean energy and cannabis ETFs, was 2021’s worst performer. It was preceded by the energy limited partnership sector in 2020 and equity energy in 2019.

The table below shows the returns for all ETF sector categories as of the end of June. There is not a single sector that hasn’t had at least one down year out of the last four.

While it can be tempting to focus on what is currently doing well, it’s important to realize that both leaders and losers change over time. Today’s sector leader can be tomorrow’s laggard and vice versa. Diversification helps to guide your portfolio through the market’s twists and turns by increasing the odds of having at least a small allocation to the right sector or fund category at the right time.

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