If your clients use a sector rotation strategy, hopefully they’ve allocated some of their assets over the past decade to the technology, pharmaceutical and the consumer discretionary sectors.
Those three areas accounted for the best-performing index funds over the past 10 years. (Of the three, tech is by far the most dominant.)
To be sure, various indexes track every imaginable aspect of the investment markets, but when we collected the top-performing index funds over the past 10 years, most of them tracked major sectors.
Discounting the dazzling performance of some sectors, one expert emphasized the need for traditional asset allocation. “If you’re investing in specific sectors, it is likely feast or famine in terms of your returns,” says Greg McBride, chief financial analyst at Bankrate. “Some sectors outperform while others underperform. Oftentimes, they then reverse course,” he says, warning against “trying to pin the tail on the donkey of finding a winning sector.”
Indeed, even though the tech, pharmaceutical and consumer discretionary sectors are among the four biggest in the S&P 500, which has 11 sectors total, they still account for just half of the overall index. (IT is 24.8%, health care is 13.8% and consumer discretionary is 13%, according to S&P Dow Jones Indices.)
The 20 funds posted 10-year annualized returns ranging from 13.5% to 19.8%, with an average gain of 14.9%. Expense ratios ranged from 10 basis points (a common charge for Vanguard’s sector ETFs) to 63 basis points for PowerShares Dynamic Software ETF. The average was 43 basis points.
Scroll through to see the 20 top-performing index funds over the past 10 years. In addition to 10-year returns, we also show one-year return, assets and expense ratios for each fund. All data from Morningstar Direct.