Turkish and oil equity ETFs were the biggest winners of 2022 in a tough year for market performance.
Generating outperformance has been a mighty task for almost every asset class over the past 12 months as geopolitical and macro headwinds have left little place for investors to hide.
The Russian invasion of Ukraine and the subsequent global energy crisis meant another bumper year for the sector while broad commodities also experienced strong performance as most of the world fully opened following two years of COVID-19.
Highlighting energy stocks’ dominance, the price of crude oil remains at an eight-year high despite retreating to where it was at the start of the year.
Following a torrid year for the Turkish equity market in 2021, the country has experienced a remarkable turnaround over the past 12 months. Despite facing rampant inflation, Turkey’s central bank has gone against global consensus and cut interest rates in a bid to boost consumer spending.
Meanwhile, Brazil ETFs have also benefitted from the strong commodity performance, catapulting them toward the top of the charts of the best-performing ETFs of last year.
Turkey’s turnaround
Having featured in the worst-performing ETFs article of 2021, last year proved to be a remarkable turnaround for Turkish equities despite facing many of the same headwinds as its emerging market counterparts.
Much of this can be attributed to President Recep Erdogen’s approach to monetary policy highlighting the need for investors to tread with caution.
In stark contrast to most other governments dealing with rampant inflation, Erdogen slashed interest rates from 19% in September 2021 to 9% last November to boost the economy and even fired central bankers who disagreed with his measures.
While the strategy delivered a boost to its stock market, it has had a disastrous effect on the country’s economy. Inflation hit 84.4% in November versus 21.3% 12 months earlier while the Turkish lira is 36.5% down on the US dollar over the same period.
Looking to safeguard their savings, local retail investors have poured into Turkish stocks, with trading accounts up 32% this year, according to Turkey’s Central Securities Depository.
This has helped ETFs tracking Turkish stocks to see a huge outperformance over this period. Topping the charts is the Lyxor MSCI Turkey UCITS ETF (TURL) which returned 89% in 2022 and was the best-performing ETF in Europe over the period.
Following closely behind are the HSBC MSCI Turkey UCITS ETF (HTRY) and the iShares MSCI Turkey UCITS ETF (ITKY) which returned 86.5% and 85.6%, respectively.
Energy reigns
As rising demand following the big COVID-19 reopening pushed energy stocks to the top of the charts in 2021, a supply shock following the shunning of Russian oil and gas has led to a huge outperformance of the sector in 2022.
Crude oil hit a 14-year high in June at $120 a barrel as the energy crisis following the Russian invasion of Ukraine peaked fuelling strong sector performance.
Topping the charts are several US energy sector ETFs. The sector was the biggest contributor to earnings growth for the S&P 500 at 5.1% as oil companies posted bumper profits.
These include the iShares S&P 500 Energy Sector UCITS ETF (IESU), the Xtrackers MSCI USA Energy UCITS ETF (XSEN) and the SPDR S&P US Energy Select Sector UCITS ETF (GXLE) which returned 64.8%, 64.2% and 63.9%, respectively.
This is followed by the iShares MSCI World Energy Sector UCITS ETF (WENS) and the Xtrackers MSCI World Energy UCITS ETF (XDW0) – both of which are 63% weighted to the US – with returns of 47.6% each.
Meanwhile, the purer sector plays including the iShares Oil & Gas Exploration & Production UCITS ETF (SPOG), which tracks the S&P Commodity Producers Oil and Gas Exploration & Production index, returned 41.4% in 2022.
Commodities outperform
Much like the energy sector, the early-year rally of commodity ETFs cooled in the second half of 2022 as supply pressures eased following the onset of the war in Ukraine in February.
Diversified commodity ETFs still posted a strong year however as energy, agriculture and precious metals all saw favourable macro-economic conditions.
Leading the way was the Lyxor Commodities Refinitiv/CoreCommodity CRB TR UCITS ETF (CRBL) with returns of 23%.
This was closely followed by the L&G Multi-Strategy Enhanced Commodities UCITS ETF (ENCO) and the Xtrackers Bloomberg Commodity ex-Agriculture & Livestock Swap UCITS ETF (XBCU) which returned 22.6% and 20.3%, respectively.
Despite its outperformance over the past 12 months, JP Morgan said the asset class was in a “super-cycle” and maintained an overweight positioning to the asset class going into next year but added these must be balanced against a recession risk.
Brazil bounces
Brazilian equity ETFs have experienced a strong year, driven by performance in the first half of the year in particular, after Russia’s invasions of Ukraine pushed up commodity prices globally.
Exports reached record-high levels in 2022, pushed up by the positive commodity shock and diversification of its export partners, according to the Bank of America.
The ETFs that best captured the market in 2022 are the iShares MSCI Brazil UCITS ETF (IBZL) and the Lyxor MSCI Brazil UCITS ETF (RIOL) which returned 15.9% and 15.5%, respectively. Meanwhile, the Amundi MSCI Brazil UCITS ETF (BRZ) posted returns of 12.8%.
A recent poll by Reuters suggested Brazil stocks will rally a further 13% by the end of 2023, however, market experts have warned recently elected president Luiz Inácio Lula da Silva’s potential slower than anticipated monetary policy easing and lower commodity prices could hurt its stock market.
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