Tom Madell
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Summary
- Since we are currently in a bear market of unknown duration, it could be helpful if investors were aware of exactly how well different ETF investments did during prior ones.
- I chose 22 popular ETF investments, each from different fund categories.
- I examined how each fund, as representative of its category, did during prior starting and ending dates for several bear markets.
- I highlighted the best and worst performers during bear markets and discussed thepotential implications of these findings.
One of the most widely followed stock indices, the S&P 500, began what has now proven to be a bear market on Jan. 3, 2022, as a result of having reached a drop of over 20% on June 13, 2022, when it "officially" became a bear market. A 20% drop in an index is one of the most widely accepted definitions of a bear market. The Nasdaq is also in a bear market.
Many sources give suggestions as to the kinds of stocks and ETFs that are usually most negatively affected by a bear market. However, in this article, I present exact data on how 22 ETFs representing different categories of ETFs actually performed over the last several bear markets. My objective is to identify the best and worst performing ETFs during these periods. But an equally important aim was to show the categories these funds represented, under the assumption that most other funds in the same categories as these funds likely can be thought of as performing similarly.
So, for example, an ETF such as Invesco QQQ Trust (QQQ), a Large Growth ETF, probably performed quite similarly as Vanguard Growth Index (VUG), another Large Growth ETF during bear markets (and outside of them) since both are index funds. QQQ probably performed quite similarly to Fidelity Contra (FCNTX), a non-indexed fund, as well.
If true, this would mean that most Large Growth ETFs and even Large Growth mutual funds, might also show the same kind of performance results during a bear market as other within the Large Growth category. So, if QQQ shows a poor result during bear markets, one can assume other Large Growth ETFs (and mutual funds) would show poor results as well.
Unfortunately, most ETFs have only been in existence for two previous bear markets, with the second one being the very brief one following the onset of Covid 19. However, a few ETFs have been around as far back as early 2000 when a third bear market started. (Note: I use the dates for the start and end of bear markets supplied by Standard & Poor's Corporation as published on the following website).
How I Proceeded
I selected a variety of ETFs from a list of the most popular ETFs as measured by assets under management available here. These ETFs, 22 in all, represented 22 different categories. I then used the starting and ending dates of bear markets and checked the performance of each of the 22 ETFs during the 2 or 3 bear markets these funds were in existence and averaged these bear market results.
The results of these procedures are shown below. Since the S&P 500 is currently in a bear market, I also ascertained the Year-To-Date performance of each ETF to see how well it seemed to support the prior bear market data.
Finally, I ordered the 22 fund categories in terms of the best performing to the worse performing as reflected by the specific ETF from that category I had selected.
Results
Category Fund (Symbol) Average Prior Bear Mkt. Performance Year-To-Date Performance Long Government iShares 20+ Year Treasury Bond (TLT) +15.9% -23.46 Gold SPDR Gold Shares (GLD) +10.2 % +0.1 Short Government iShares 1-3 Year Treasury Bond (SHY) +2.84 -3.16 Intermediate Core Bond Intermediate Core Bond (AGG) -1.0% -10.84 Inflation-Protected Bond Shares TIPS Bond (TIP) -2.29% -7.82 Corp. Bd. iShares iBoxx $ Invmt Grade Corp Bd (LQD) -13.2% -16.39 Consumer Defensive Consumer Staples Select Sector SPDR (XLP)* -19.2% -4.40 Health Health Care Select Sector SPDR® (XLV)* -28.6% -7.64 Consumer Cyclical Consumer Discretionary Select Sector SPDR Fund (XLY)* -38.7% -27.85 Real Estate Vanguard Real Estate (VNQ) -39.4% -18.70 Utilities Utilities Select Sector SPDR (XLU)* -40.7% -2.15 Technology Vanguard Information Technology (VGT) -42.6% -24.64 Energy Energy Select Sector SPDR® (XLE)* -44.3% +31.58 Large Blend SPDR S&P 500 ETF Trust (SPY) -46.6%* -17.32 Emerging Mkts Vanguard FTSE Emerging Markets (VWO) -47.4% -13.77 Foreign Large Blend Vanguard FTSE Developed Markets (VEA) -48.2% -17.85 Large Value Vanguard Value (VTV) -48.6% -8.0 Mid-Cap Blend iShares Core S&P MidCap (IJH) -48.8% -17.28 Small Blend iShares Core S&P Small-Cap (IJR) -49.9% -17.28 Finance Financial Select Sector SPDR® (XLF)* -50.32% -16.37 Small Value Vanguard Small-Cap Value (VBR) -53.5% -13.34 Large Growth Invesco QQQ Trust (QQQ)* -54.3% -25.58
Notes:
1. Results are not annualized.
2. Year-to-Date performance is of June 24.
3. Performance based on 3 prior bear markets are shown with an asterisk (*).
Discussion
It is clear that most categories of stock ETFs have averaged very poor returns during bear markets. After all, bear markets are defined by quite poor stock market returns. But certain categories of stocks have done much more poorly than others.
The worst performers during the two, or in some cases, three bear markets that were available and included for inclusion in my data were Large Growth and Financial, but several other categories were not far behind.
If we consider the current bear market (which was not included in the average bear market performance show in the third column of the above table), we also see Large Growth as one of the poorer stock performers as joined by Consumer Cyclical.
The best stock ETF category proved to be Gold, both in prior and the current bear market. Consumer Defensive did relatively better than most other stock categories as well.
For the most part, all bond funds included did better over the prior bear markets than all of the stock funds that were included. However, there was a complete reversal for Long Term Government bonds, which were excellent performers during prior bear markets but have done very poorly during the current one. Perhaps this is due to the extremely low level of interest rates prior to the start of this year which turned into a bond market rout when the Fed abruptly and rapidly changed course. Corporate Bonds were overall the worst performing bond funds.
Implications
These results give a picture of how different funds and the categories performed on average during prior bear market as well as the current one. Investors who wish to fine tune their specific investments as well as their asset allocations may find it useful to utilize this data showing how ETFs have done across bear markets from at least three different periods, at least two from the past, and one still ongoing.
This article was written by
Tom Madell
Tom Madell, Ph.D., is the publisher of Mutual Fund/ETF Research Newsletter, a free newsletter which began publication in 1999 with thousands of readers. It has become one of the most popular mutual fund/ETF newsletters on the internet, as shown here. His site has been named as one of the "Top 12 Investment Newsletters Focusing on Mutual Funds" at mutualfunds.com , an important fund information provider, under "Fund Newsletter". Also, recently his Newsletter was recognized as one of 5 expert mutual fund resources worth following offering free, and, in its case, particularly "unbiased, useful, and original advice" at http://funds-newsletter.com/fundreference-art.htm .He is also a researcher/writer/investor whose articles have appeared on hundreds of websites, including the Wall Street Journal, USA Today, Morningstar and in the international media.His articles have been among the most popular among those posted on the Morningstar.com website by non-Morningstar employed contributors.His recommendations have an outstanding, long-standing record of success . His complete list of former articles can be accessed at http://funds-newsletter.com
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.
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The article discusses the performance of various ETFs across different market conditions, particularly during bear markets, and it categorizes these ETFs based on their performance history. The author, Tom Madell, provides insights derived from historical data on the behavior of 22 popular ETF investments in various market categories during bear markets.
Here's a breakdown of concepts mentioned in the article:
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Bear Market Definition: A bear market is confirmed when an index (like the S&P 500) falls by 20% or more from its recent high. This article focuses on analyzing ETF performance during these downturns.
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ETF Selection Criteria: Madell chose 22 ETFs from different categories, aiming to represent a broad spectrum of investments. These categories include Long Government, Gold, Short Government, Intermediate Core Bond, Inflation-Protected Bond, Corporate Bond, Consumer Defensive, Health, Consumer Cyclical, Real Estate, Utilities, Technology, Energy, Large Blend, Emerging Markets, Foreign Large Blend, Large Value, Mid-Cap Blend, Small Blend, Finance, Small Value, and Large Growth.
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Performance Evaluation: The author examines historical data from prior bear markets, averaging the performance of these ETFs during those market conditions. He also checks their Year-To-Date performance during the ongoing bear market.
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ETF Performance in Bear Markets: The article highlights the best and worst-performing ETFs during bear markets across various categories. For instance, Large Growth and Financial ETFs showed poor performance historically, whereas Gold and Consumer Defensive ETFs performed relatively better.
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Bond vs. Stock Performance: Generally, bond funds performed better than stock funds during bear markets. Long-Term Government Bonds were excellent performers historically but performed poorly in the ongoing bear market, possibly due to interest rate fluctuations.
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Implications: The data aims to assist investors in refining their investment strategies and asset allocations based on historical ETF performances during bear markets.
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Author's Expertise: Tom Madell, the author, is a Ph.D. and the publisher of a popular Mutual Fund/ETF Research Newsletter since 1999. His work has been widely recognized and referenced across reputable financial platforms.
Madell's analysis provides valuable insights into how various ETF categories have historically performed during bear markets, offering investors a reference point to gauge potential performance in market downturns.
My knowledge base encompasses a wide range of financial concepts, including ETFs, investment strategies, market analysis, and economic trends. If there are specific aspects or further details you'd like to explore about ETFs or investment analysis, feel free to ask!