Performance Of Previously Recommended ETFs/Funds: A Follow-Up

Summary

• In this article, I will look at some broad fund/ETF categories to see how my recommendations of almost a year ago turned out.
• I looked at sector, Value vs. Growth, Small Cap vs. Large Cap, and Long Term vs. Short Term bond category performance.
• My biggest wins were Energy and Financials predictions, along with my choice of Value over Growth, and two specific Large Value funds.
• Favoring Small over Large Cap did not bear fruit, but since Jan. 1st, Small Cap Value has been among the least affected by falling stock prices.
• Longer Term bonds have done a tad better than I expected; however, since the Fed "pivot," Short-Term bonds have lost a lot less.

ijeab/iStock via Getty Images

Back almost one year ago in 2021, I published an article entitled Newly Recommended Funds/ETFs Best Suited for the Post-Pandemic Period here on Seeking Alpha. The article suggested that as a result of the extreme stimulation provided to the economy during the pandemic, including rock bottom interest rates and economic stimulus packages from Congress, a jump in economic growth was likely in the cards ahead.

We now know that this prediction proved quite accurate, although the unforeseen waves of Covid-19 also had some periodic slowing effects. Since I wrote the article, the economy expanded extremely strongly in the second and fourth quarters of 2021 (6.7 and 7.0%, respectively) although with less vigor in the third quarter (2.3%) due to the arrival of the Delta variant.

Now as we enter the first quarter of 2022, the economy is expected to slow again, due to the Omicron surge and its aftereffects, with some predicting only 2.0% growth this quarter.

The article also suggested that inflation was likely to increase as a result of the stronger growth. As we now know, this too proved very accurate, although growth is predicted to not be as strong in 2022 as it was in those two supercharged quarters mentioned above. Rather, according to most recent forecasts, the economy should grow somewhere between 2 and 4% over the entire year, according to most sources I checked.

Sector Performance

Further, as I pointed out in my article, four sectors were expected to do particularly well assuming inflation increased as predicted: Energy, Financials, Industrials, and Materials. As it turned out, anyone who invested in the Energy and Financial sectors, or ETF/funds with a high proportion of these sectors in their portfolios, has done quite well.

The following shows the subsequent performance of these sectors, as measured by four Vanguard sector ETFs, between when the article was published in the third week of March 2021 and near this February's end, as contrasted to the performance of the Vanguard ETF covering the total stock market. (Note: All performance results shown throughout are not annualized because they were realized in less than a year's time, that is between March 20, 2021 and Feb. 25, 2022)

Energy ETF (VDE) 44.2

Financials ETF (VFH) 14.7

Industrials ETF (VIS) 1.9

Materials ETF (VAW) 10.3

Vanguard Total Stock Market (VTI) 9.3

For holders of the above ETFs as mutual funds instead of ETFs, the results would be nearly exactly the same. The same is true for the other ETFs mentioned in this article which also have, virtually identical to the ETF class, "Admiral" class funds.

Value Vs. Growth Fund Performance

Another suggestion that was made in that article was that Value funds would continue to outpace Growth funds as they had in the fourth quarter of 2020 and the first quarter of 2021, as described in the article. How did this recommendation turn out? Here is data from morningstar.com:

Large Value 8.7%

Large Growth 2.7

Mid-Cap Value 7.7

Mid-Cap Growth -1.3

Small-Cap Value 5.3

Small-Cap Growth -18.0

As can be seen, the gulf between Value and Growth stocks continued as before, with the most dramatic difference for Small Cap funds.

Two specifically mentioned Large Value mutual funds (no ETF class equivalents) were Vanguard Windsor II (VWNFX) and Vanguard Equity Income Investor (VEIPX). Both these funds did considerably better than the VTI market return of 9.3, shown above, coming in at 11.7 and 14.5% respectively.

Small Cap Performance

As a whole during 2021, Small-Cap stocks have not excelled as much as I expected. If you wish to get a one person's opinion as to why, please see the following article. (Note: All after-the-fact explanations of why the stock market moved as it did, including mine, are just one person's opinion - no one really knows exactly why investors, and therefore stocks, behaved as they did, but every person is entitled to theorize.)

However, the case for upcoming outperformance of small stocks is still alive. Since the beginning of the year, Morningstar shows Small Caps are outperformed Large Caps by about 3%, although both averages are in negative territory.

My article also particularly made the case for Small Cap Value funds, using the example of the Vanguard Small Cap Value ETF (VBR).

Here the performance results for VBR over the period since the article was written has been only 4.8%. However, since the beginning of 2022, in spite of negative returns for all Vanguard U.S. ETFs, except Energy (VDE), VBR has lost just about the least, if that is any consolation to investors.

Bond ETFs/Funds

In the March 2021 article, I advised investors to stick to short and intermediate term bond funds/ETFs and avoid long term ones. Once again, looking at Vanguard ETFs as a proxy for bond fund category performance overall, the following shows how short, intermediate, and long-term bonds have done since that article's publication:

Short-Term Bond ETF (BSV) -2.3

Intermediate-Term Bond ETF (BIV) -1.9

Long-Term Bond (BLV) +0.3

This result appears to have stemmed from the fact that for most of the past year, the Fed was sanguine about raising rates. Since investors didn't think rates were going to rise in the near future, long-term bonds, which tend to be more hurt than short-term bonds when rates rise, could do marginally okay.

However, since the Fed changed its tune ("pivoted") around mid-December and adopted a much more aggressive stance toward raising rates, long-term bonds have done much worse than shorter term ones. Below you can see the apparent effect of this pivot on the above Vanguard ETFs since then:

Short-Term Bond ETF (BSV) -1.8

Intermediate-Term Bond ETF (BIV) -3.7

Long-Term Bond ETF (BLV) -8.9

If the Russian-Ukraine war causes investors to once again start to believe that the Fed will no longer be aggressive about raising rates, then longer term bonds may stabilize somewhat. However, I don't think that the war itself and its aftereffects will keep interest rates stable long. But as Yogi Berra, the former baseball player/"philosopher" has reportedly said “'It's tough to make predictions, especially about the future.”

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I own VFH (long).