The Best and Worst Performing Themes of 2022
In a tough year for many stocks, some themes continued to thrive – notably oil and gas – while others took the brunt of macroeconomic headwinds, including the former stock market darling, disruptive innovation. Here are the funds and stocks with the biggest gains and losses.
Russia’s invasion of Ukraine has dominated stock performance in all markets this year. Sanctions and oil shortages sent oil prices soaring, leading to outsized performance for oil and gas stocks.
the Fidelity MSCI Energy Index ETF [FENY] gained 56.9% in the year to December 21, peaking on November 14 when it hit 76.1% year-to-date.
The main holdings of FENY, ExxonMobil [XOM], Chevron [CVX] and Conoco Phillips [COP], gained 81.3%, 52.4% and 62.9% respectively in the year to December 21. However, all three took a hit on November 21 when Oxfam filed shareholder resolutions against them alleging secretive tax practices. ExxonMobil and Chevron plan to increase spending on energy projects next year, although production may be flat.
the SPDR Energy Select Sector Fund [XLE] gained 59.2% through December 21. XLE’s top two holdings, ExxonMobil and Chevron, made up more than 42% of the fund’s holdings. Third holding, Schlumberger AG [SLB]gained 75.4% for the year to December 21 and 44.7% since early October.
The iShares US Oil & Gas Exploration & Production ETF [IEO] gained 54.3% through December 21. ConocoPhillips tops the fund’s holdings, with the second and third largest holdings, EOG Resources [EOG] and Marathon Petroleum Corporation [MPC]gaining 53.2% and 81.2% respectively at the December 20 close.
Despite a positive year, improving domestic energy security, recession fears and a slowdown in Chinese demand provided a bearish December for oil and gas stocks.
The drive for energy security and reduced dependence on Russian-led oil markets has boosted clean energy stocks, especially solar power. The United States and France are among the countries to pass significant solar stimulation legislation this year, and the industry has flourished. Solar power is expected to overtake coal-generated power by 2027, according to a recent report by the International Energy Agency (IEA).
Solar stocks such as First Solar [FSLR], Enphase Energy [ENPH] and Daqo New Energy [DQ] benefited from the growth of the sector, gaining 79.7%, 61.7% and 9.8% respectively as of December 21. As of July 7, Daqo was up 91% for the year, but reduced supply and higher polysilicon prices in China led to a sharp decline in the second half of the year.
The three shares are held by the Invesco Solar ETF [TAN], with First Solar and Enphase leading and third respectively as of December 19. The fund fell 25.2% through May 12, before rebounding 56.5% through August 10. As of December 21, TAN broke even for the year with gains of 0.2%.
While solar was the big winner, clean energy stocks across the board had a positive year. In recent weeks, California’s first-ever offshore wind lease auction has reached $757.1 million in bids, while the Australian government has also backed the expansion of wind and solar capacity.
the iShares Global Clean Energy ETF [ICLN] closed Dec. 20 down 4% for the year, while as of Sept. 12 it was up 9.8%. ICLN’s largest holding is Enphase Energy, while numbers two and three, Vestas wind systems [VWS.CO] (pictured above) and Iberdrola S.A. [IBE.MC]fell 4.3% and gained 8.5% as of December 21, respectively.
Ormat Technologies [ORA]a leader in geothermal energy, and Bloom Energy Corporation [BE]a solid oxide fuel cell maker, have performed relatively well in the space this year, gaining 9.9% and falling 6.3% respectively as of Dec. 21.
Given that some of the year’s best performing stocks and funds posted negative returns, it’s no surprise that stocks generally had a torrid year. The S&P 500 fell 19.8% as of December 21.
One of the ripple effects of these low returns has been an unfavorable environment for initial public offerings (IPOs). According to EY data, IPO volumes fell 45% year over year, with products down 61%.
Entrepreneurs can be forgiven for postponing IPO plans this year, given the poor performance of many recent launches. the Renaissance POPE ETF [IPO], which tracks an index of recently IPO stocks, fell 57% in the year to Dec. 21. The three main holdings of the fund, Snowflake [SNOW], Airbnb [ABNB] and coupang [CPNG]fell 58.3%, 47.4% and 42.3%, respectively.
Biggest IPO of the Year — That of LG Energy Solution Ltd [373220.KS] – took place in January and raised $10.7 billion. Since then, only one IPO, that of Dubai Electricity & Water Authority [DEWA.AE] raised even half of the funding. LG Energy fell 20.1% between its January 27 and December 21 debut. Dubai Electricity and Water has fallen 9.7% since its launch on June 15.
Cannabis stocks soared in 2021 on hopes that President Joe Biden’s administration would legalize the drug federally. This did not materialize and stocks suffered. Aurora Cannabis [ACB] fell 82.6% on the year to December 21, while Canopy Growth Society [CGC] was down 70.8%.
Cannabis ETFs have been a popular trend for thematic investors in recent years, but these too have suffered in 2022. Cannabis ETFs [THCX] fell 69.6% as of December 21, while AdvisorShares Pure Cannabis ETF [YOLO] fell 71.2%. Both funds own Canopy Growth and THCX also owns Aurora; its three main holdings, Gamma CAF [AFCG]Nova Cannabis [NOVC.TO]and Chronos Group [CRON] fell 19.8%, 72.85% and 32.7% in the year to December 21.
YOLO’s second largest participation, Jazz Pharmaceutical [JAZZ], was one of the few top performers in the theme, with gains of 22.5%. His third and fifth appearances, International Village Farms [VFF] and Tilray Brands [TLRY]fell 78.3% and 59.7%, respectively.
It’s been a tough year for disruptive innovation funds, especially Cathie Wood’s ARK Invest. The flagship ARK Innovation ETF [ARKK] is down 66% over the year to December 21, while more specialized funds such as the ARK Next Generation Internet ETF [ARKW] and the ARK Fintech Innovation ETF [ARKF] decreased by 67.1% and 65% respectively.
Block Inc. [SQ] is held by all three funds and has fallen 62% in the year to December 21. Roku [ROKU], ARKW’s third-largest holding and ARKK’s fourth-largest, fell 81.2% as payment and entertainment providers were both hit by the squeeze on consumer spending during the year. Meanwhile, the end of pandemic conditions has spelled bad news for stocks like Focus on video communications [ZM]owned by ARKK and ARKW, which fell 62.7%.
As stocks in the disruptive innovation space are troubled in the current macro climate, Wood remains convinced that they are in “deep value territory”, explaining that Ark “takes[s] take advantage of volatility during corrections and focus our portfolios on our most compelling stocks. »
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