These were the best-performing funds and sectors in 2021

Are you looking at investing in a stocks and shares ISA before this tax year ends? Here’s a look at the best-performing funds and sectors in 2021.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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With less than ten weeks left to use this year’s ISA allowance of £20,000, investors may be considering where to invest their stocks and shares ISA.

After a rocky year in 2020 as a result of the pandemic, markets bounced back in 2021, delivering some impressive returns. But who were the winners? I’m going to reveal the best-performing funds and sectors in 2021 and the factors that contributed to their success.

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What were the best-performing funds in 2021?

According to Trustnet, these were the best-performing funds in 2021:

Fund

Return

iShares Oil & Gas Exploration & Production

70.8%

iShares S&P 500 Energy Sector

55.2%

SSGA SPDR S&P US Energy Select Sector

53.9%

Xtrackers MSCI USA Energy

52.4%

Schroder ISF Global Energy (A Dis)

48.8%

Guinness Global Energy (Y Acc)

45.8%

TB Guinness Global Energy (I Acc)

45.7%

Nomura India Equity

45.6%

Alquity Indian Subcontinent

44.4%

BlackRock GF World Energy

43.9%

 

Eight of the 10 best-performing funds were invested in the energy sector, which profited from oil and gas prices reaching a seven-year high, amid a spike in demand as economies started to recover from the pandemic.

However, these gains were largely a reversal of the energy sector’s performance in 2020, when it was hit by the huge fall in demand for energy. According to Forbes, the energy sector was the worst-performing S&P 500 sector in 2020, with an average loss of 37%.

Interestingly, the four highest-performing funds were passive rather than actively managed funds, meaning they aim to replicate an index or benchmark. Passive or ‘tracker’ funds tend to charge a lower annual fee. The iShares S&P 500 Energy Sector fund has a total expense ratio of 0.15% compared to 0.99% for the Guinness Global Energy fund.

What were the best-performing sectors of 2021?

These were the five top-performing sectors in 2021, and their returns in 2020 for comparison, according to Trustnet:

Sector

2021

2020

India/Indian subcontinent

28.3%

11.2%

North America

25.5%

16.2%

Commodity/Natural Resources

24.0%

3.7%

UK Smaller Companies

22.9%

6.5%

Global Equity Income

18.7%

3.3%

 

With a return of 28.3%, the Indian subcontinent was the best-performing sector in 2021, after its dramatic bounce-back from the coronavirus wave in the first part of the year. There’s been a flurry of IPOs by technology firms, and Citywire reports that the “size of India’s stock market is set to overtake the UK.”

North America also performed well, rising from seventh place in 2020 to second place in 2021, with a return of 25.5%. Despite the pandemic and supply chain issues, the large technology stocks, including Alphabet (65%), Microsoft (51%) and Apple (34%), had a stellar year in terms of share price rises. However, Bloomberg reports there’s been a “stampede out of tech” in 2022 as inflationary concerns hit the valuations of high-growth technology firms.

After a modest 2020, the Commodity and Natural Resources sector was the third highest-performing sector at 24.0%. As commodity prices typically rise when inflation accelerates, this sector benefited from investors looking to find a hedge against high inflation rates.

The UK Smaller Companies sector also produced a top-five return of 22.9% in 2021, having had a flat 2020. Small-cap companies often perform strongly when the market is improving and may deliver higher growth than large-cap stocks. Fidelity UK Smaller Companies was the highest-performing fund within this sector in 2021, achieving a 34.5% return.

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How to invest in these funds

A stocks and shares ISA is a tax-efficient way of investing in funds. It’s worth reviewing our top-rated stocks and shares ISA providers before you make your choice.

Here are some tips to get you started:

  • Decide what type of fee structure is the best value option for your ISA. Providers such as Hargreaves Lansdown charge a percentage fee on the value of your portfolio but no charge for buying or selling funds. Interactive Investor charges a flat monthly fee but charges £7.99 for buying or selling funds.
  • Review the range of funds available. Providers such as Hargreaves Lansdown and Fidelity offer investors a choice of over 3,000 funds. By comparison, Vanguard offers a more limited range of 70 of its own funds.
  • Consider diversifying your portfolio. There is a wide range of investment options from different sectors to different countries. Passive funds that track an index may be attractive to investors looking for a low-cost option rather than trying to pick a top-performing active fund.
  • You can currently invest up to £20,000 in a stocks and shares ISA. There are fewer than ten weeks left to invest before the current tax year ends on 6 April.

It’s important to understand that past performance is not an indication of future results and that the value of investments may go down as well as up.

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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