Like most working people, I have a Monday morning routine:

  1. I fire up my Jura Swiss coffee machine and direct its output into my Yeti mug, then into me.
  2. My wife and I feed the dog and the kid and get the latter off to school.
  3. I check the early performance of The Bauman Letter’s model portfolios.
  4. I fire up my Jura Swiss coffee machine for round two.

With due respect to my family, steps one and three are the most important.

No. 1 is obvious, at least to me. I don’t function before coffee.

But No. 3 is a close second.

It tells me what kind of a day it’s likely to be in the markets. This morning, for example, the Endless Income segment was the only one in positive territory so far. That tells me the market’s mood is risk-off.

But this is no ordinary Monday: The end of 2021 is a little over two weeks away.

So, this morning, I broadened the target of my monitoring software to give you a flying overview of how different market segments did this year.

The results will definitely surprise you…

The Method

The tables below list a number of exchange-traded funds (ETFs). They also show their gains year to date, and the difference with the performance of the S&P 500.

Before we get to the tables, though, I want you to take a good hard look at the following chart from Goldman Sachs:

S&P 500 2021 YTD Return

(Click here to view larger image.)

This is something I’ve talked about all year in Bauman Daily.  More than one-third of the S&P 500 gains this year are attributable to just five companies: Apple, Microsoft, Alphabet, NVIDIA and Tesla.

By contrast the overwhelming majority of companies in the S&P 500 have had negligible gains this year. A sizable number have experienced losses.

Keep that in mind as you review the following tables. Beating the benchmark this year means beating some of the biggest technology companies out there. That’s no easy task.

Market Winners

Here are 12 industry-specific ETFs that outperformed the S&P 500 by double digits in 2021:

2021 stock market winners

(Click here to view larger image.)

The pattern is striking.

This year’s market-beating returns came from residential construction, energy and semiconductors. Decent gains were also to be had in commodities, blockchain, and capital and real estate markets.

The next chart shows the top performing ETFs according to factors rather than industries:

2021 top performing ETFs

(Click here to view larger image.)

The standout here is small-cap value/quality stocks. These are companies that actually generate profits, unlike many of today’s hottest meme stocks. But they fly under the radar.

The second stand out is companies that produce strong free cash flow. There’s overlap with the first group, of course; many of the stocks in the small-cap value/quality area do exactly that.

Market Losers

Now let’s look at the losers.

It’s not a pretty picture, especially if you bought some of the constituent holdings in the fourth quarter of last year:

2021 stock market losers

(Click here to view larger image.)

The list reads like a who’s who of the most popular stock categories of 2020. And they’ve all got slaughtered in 2021.

Almost anything involved with next-generation technologies and innovation got hammered. So did SPACs, IPOs and other newly arrived tickers. Investors seem to have lost their appetite for companies promising big things far in the future, but no profits now.

But sectors with strong secular tailwinds also got nailed.

Big losers came from undeniable future growth markets like pharmaceuticals, biotech, fintech and payments, renewable energy and cannabis stocks.

Still, there is a link between those two groups. Basically, the market lost faith in companies that aren’t producing earnings and cash flow right now.

And because many of those companies had become absurdly overvalued towards the end of last year and the beginning of this year, their fall from grace has been particularly steep.

I Told You So

Ever since the market began to turn downward in late winter and early spring this year, I’ve been banging the quality-and-earnings drum.

And the results above show that I was right.

The stocks that outperformed the market — including the five companies responsible for 35% of the benchmark gains this year — were smaller, quality companies producing strong cash flow and earnings.

So there you have it: That’s how 2021 has gone so far.

Tune in next week for my predictions for 2022!

Kind regards,

Ted Bauman
Editor, The Bauman Letter