Technology has been the industry sector with the highest Annualized Return and Annual Sharpe Ratio in 2020.
In this article we will analyse the performance of industries via sector specific ETFs taken from Morningstar. A total of 525 EFTs worldwide for 12 economic sectors were used for this analysis. For each industry we computed AUM weighted statistics.
Table 1: Performance of the economic sectors in 2020
|
|
Annualized Return |
Annualized Volatility |
Annual Sharpe Ratio (rf=0.25%) |
Normal Monthly VaR 95% |
Max Drawdown |
|
Technology Sector Equity |
63.89% |
30.46% |
1.99 |
-10.10% |
-17.01% |
|
Utilities Sector Equity |
61.87% |
29.21% |
1.54 |
-10.13% |
-20.48% |
|
Healthcare Sector Equity |
47.00% |
25.12% |
1.56 |
-8.83% |
-12.87% |
|
Consumer Goods & Services Sector Equity |
33.92% |
33.62% |
0.96 |
-13.22% |
-23.60% |
|
Precious Metals Sector Equity |
27.36% |
51.89% |
0.52 |
-21.69% |
-24.64% |
|
Communications Sector Equity |
22.62% |
26.40% |
0.82 |
-10.60% |
-18.36% |
|
Commodities Specified |
20.49% |
56.60% |
0.36 |
-24.22% |
-29.83% |
|
Energy Sector Equity |
8.88% |
65.04% |
0.50 |
-29.63% |
-47.54% |
|
Industrials Sector Equity |
7.44% |
36.90% |
0.29 |
-16.47% |
-31.69% |
|
Infrastructure Sector Equity |
7.44% |
36.90% |
0.29 |
-16.47% |
-31.69% |
|
Financials Sector Equity |
-11.94% |
33.32% |
-0.42 |
-16.42% |
-32.24% |
|
Real Estate Sector Equity |
-13.40% |
27.50% |
-0.50 |
-13.94% |
-28.20% |
Source: Morningstar
The table above is ranked based on annualized returns.
The technology sector was the best performing sector of 2020 with the highest annualized return at 63.89% and the highest annual Sharpe Ratio at 1.99. The second industry based on annualized return at 61.87% is the Utilities sector and based on the Sharpe Ratio is the healthcare sector with a ratio of 1.56.
The worse performing sectors were the financials and the real estate. The financials sectors had an annualized return of negative -11.94% and a Sharpe Ratio of -0.42. The real estate sector had even worse negative returns at negative -13.40% and a Sharpe Ratio of -0.25.
Sectors such as precious metals, communications, and commodities stand somewhere in the middle of this group generating positive but lower annualized returns.
A possible explanation behind this is the behaviour of people in the effects of the quarantine. During the lockdown, people have heavily relied on the use of technology to keep them both connected and entertained. The same line of reasoning goes for the utilities sector – with consumers tending to spend substantially more on utilities due to the increased time spent at home.
In conclusion, out of 12 key economic sectors, the technology and utilities sector had the highest annual returns and highest Sharpe Ratio in 2020. On the other side of the spectrum, we have financials and real estate which had negative returns and negative Sharpe Ratio.
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