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The Best and Worst Performing Sectors of 2020

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The Best and Worst Performing Sectors of 2020

The Best and Worst Performing Sectors of 2020

To say that 2020 was an unusual year in markets would be a vast understatement.

In 2020, we saw the quickest and deepest bear market decline in history, trillions of dollars of global stimulus, the highest volatility (VIX) on record, negative oil prices, and the fastest recovery from a bear market ever—just to name a few of the abnormalities.

And while the broader economy is still in a state of repair, investors finished the year in the black. The S&P 500, for example, ended with 16.3% gains, which was an above-average outing for the benchmark index.

Winners and Losing Sectors of 2020

Today’s visualization uses an augmented screenshot of the FinViz treemap, showing the final numbers posted for major U.S.-listed companies, sorted by sector and industry.

As you can see, the best and worst performing sectors generally fall into two categories: those that benefitted from COVID-19, and those that didn’t.

This massive divergence is evident in the numbers. Companies in winning sectors are often up double or triple digits—while their losing counterparts were often down double digits, sometimes even halving in value from how they started the year.

The Winners

1. Software Applications
It was another banner year for Big Tech, but some of the top performing companies were those that acted as enablers to remote working and ecommerce. Perhaps the most notable entry here is Shopify, which rose 178% on the year and is nearly a $150 billion company today.

2. Internet Retail
While Amazon is the undisputed 800-pound gorilla in ecommerce, companies like Etsy and Wayfair also had incredible years—as did many internet retail plays on the opposite side of the Pacific. Chinese company Pinduoduo, described as the fastest growing tech company in the world, gained 331% on the year as it capitalized on emerging trends such as social ecommerce, team purchasing, and consumer-to-manufacturing (C2M) sales.

3. Basic Materials
It’s been a long downtrend in the commodity super cycle, but materials have come back into vogue. Copper prices are at eight-year highs, and gold hit all-time highs in August 2020. Some companies, such as Albemarle—the largest supplier of lithium for electric vehicles—doubled their stock price over the course of the year.

4. Freight and Logistics
The shift to ecommerce has come faster than anticipated, and companies like FedEx and UPS couldn’t be happier. And with the transportation of ultra-refrigerated vaccines lining up to be a key need of 2021, it’s no surprise to see Cryoport up 165% on the year.

5. Semiconductors
For a second straight year, semiconductor companies finished as winners on our list. The world needs more hardware to house and process the ever-expanding datasphere, and companies like Nvidia showed triple-digit gains in 2020, up 117%.

Honorable mentions: Discount stores, retail home improvement, farm and heavy construction machinery, medical care facilities, and consumer electronics

The Losers

1. Oil and Gas
The oil sector was already struggling pre-COVID with price wars and a supply glut, but then lockdowns and the shutdown of non-essential travel provided another blow. BP finished the year at nearly half its market capitalization, falling 46% on the year.

2. Diversified Banks
With record-low interest rates, shuttered physical locations, and credit risks looming from unemployed borrowers, bank stocks struggled in 2020. Wells Fargo, for example, finished down the year 44%.

3. Real Estate – Retail
Many malls have not been collecting rent checks from their tenants, creating a challenging environment for many property owners and managers. Simon, the country’s largest shopping mall operator, felt the pain as its stock dropped 41% in 2020.

4. Airlines
It goes without saying that less flying means less revenue for airlines. But going forward, with web conferencing now the professional norm, it’s also expected that lucrative business passenger numbers will take a hit in the future. United Airlines finished the year at less than half their market capitalization (-54%).

5. Aerospace/Defense
Many aerospace and defense stocks were unable to rebound to pre-pandemic levels. Boeing, for example, finished the year down 36%.

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Energy

The Periodic Table of Commodity Returns (2021 Edition)

Which commodity had the best returns in 2020? From gold to oil, we show how commodity price performance stacks up over the last decade.

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The Periodic Table of Commodity Returns (2011-2020)

Being a commodity investor can feel like riding a roller coaster.

Take silver. Typically known for sharp, idiosyncratic price movements, it faced double-digit declines in the first half of the decade, falling over 35% in just 2013 alone. By contrast, it jumped over 47% in 2020. Similarly, oil, corn, and others witnessed either steep declines or rapid gains.

The above graphic from U.S. Global Investors traces 10 years of commodity price performance, highlighting 14 different commodities and their annual ranking over the years.

Commodity Price Performance, From Best to Worst

Which commodities were the top performers in 2020?

The aforementioned silver tripled its returns year-over-year, climbing 47.9% in 2020. In July, the metal actually experienced its strongest month since 1979.

RankCommodity
Return (2020)
Return (2019)
Return (2018)
1Silver47.9%15.2%-8.5%
2Copper26.0%3.4%-17.5%
3Palladium25.9%54.2%18.6%
4Gold25.1%18.3%-1.6%
5Corn24.8%3.4%6.9%
6Zinc19.7%-9.5%-24.5%
7Nickel18.7%31.6%-16.5%
8Gas16.0%-25.5%-0.4%
9Wheat14.6%11.0%17.9%
10Platinum10.9%21.5%-14.5%
11Aluminum10.8%-4.4%-17.4%
12Lead3.3%-4.7%-19.2%
13Coal-1.3%-18.0%-22.2%
14Oil-20.5%34.5%-24.8%

Along with silver, at least seven other commodities had stronger returns than the S&P 500 in 2020, which closed off the year with 16.3% gains. This included copper (26.0%), palladium (25.9%), gold (25.1%) and corn (24.8%).

Interestingly, copper prices moved in an unconventional pattern compared to gold in 2020. Often, investors rush to gold in uncertain economic climates, while sectors such as construction and manufacturing—which both rely heavily on copper—tend to decline. Instead, both copper and gold saw their prices rise in conjunction.

Nowadays, copper is also a vital material in electric vehicles (EVs), with recent demand for EVs also influencing the price of copper.

Silver Linings

As investors flocked to safety, silver’s price reached heights not seen since 2010.

The massive scale of monetary and fiscal stimulus led to inflationary fears, also boosting the price of silver. How does this compare to its returns over the last decade?

silver returns 2011-2020

In 2013, silver crashed over 35% as confidence grew in global markets. By contrast, in 2016, the Brexit referendum stirred uncertainty in global markets. Investors allocated money in silver, and prices shifted upwards.

As Gold as the Hills

Like silver, market uncertainty has historically boosted the price of gold.

What else contributed to gold’s rise?

  • U.S. debt continues to climb, pushing down confidence in the U.S. dollar
  • A weaker U.S. dollar makes gold cheaper for other countries to buy
  • Low interest rates kept the returns of other safe haven assets low, making gold more attractive by comparison

Here’s how the price of gold has changed in recent years.

gold returns 2011-2020

Gold faced its steepest recent declines in 2013, when the Federal Reserve bank discussed tapering down its quantitative easing program in light of economic recovery.

Hitting the Brakes On Oil

Oil suffered the worst commodity price performance in 2020, with -20.5% returns.

For the first time in history, oil prices went negative as demand plummeted. To limit its oversupply, oil producers shrunk investment, closed wells, and turned off valves. Unfortunately, many companies still faced bankruptcies. By November, 45 oil producers had proceeded with bankruptcy filings year-to-date.

This stood in stark contrast to 2019, when prices soared 34.5%.

oil returns 2011-2020

As is custom for oil, prices see-sawed over the decade. In 2016 and 2019, it witnessed gains of over 30%. However, like 2020, in 2014 it saw huge losses due to an oversupply of global petroleum.

In 2020, total production cuts hit 7.2 million barrels a day in December, equal to 7% of global demand, in response to COVID-19.

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Mining

Why Gold Mining Stocks Outperform Gold in Bull Markets

Gold mining stocks outpace gold returns in bull markets, but how? With higher gold prices, miners get ahead thanks to operating leverage.

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Gold Mining Stocks in Gold Bull Market

Why Gold Mining Stocks Outperform Gold in Bull Markets

Gold is highly revered for its great returns and resilience during economic downturns, but during gold bull markets there’s something that regularly provides even greater returns: the ownership of gold mining stocks.

Over the past 20 years, gold mining stocks have outperformed the price of gold bullion in bull markets, offering what can be seen as a leveraged play on gold’s price appreciation.

While gold miners offer more potential upside, they also have higher volatility and greater downside during dips, making market timing and strong hands all the more important.

This infographic comes to us from Sprott and compares the returns of gold stocks and gold bullion in bull markets. It also explains how gold stocks outperform thanks to profit expansion, and shows why there might be more upside for gold miners to come.

How Operating Leverage Benefits Gold Mining Companies

During the 2000-2011 gold bull market, the price of physical gold rose 550%. While you might think that number is hard to beat, over the same period of time gold mining equities (represented by the NYSE Arca Gold Miners Index) returned more than 690%.

In the current gold bull market which started in 2015, gold mining stocks are up more than 182%, more than doubling gold bullion’s 78% returns.

This outperformance in bull markets is largely due to how gold mining companies use their operating leverage to maximize profits, resulting in their share prices appreciating.

Breaking Down Gold Mining Costs and Profits

As a gold mining company mines and produces gold, the gold is sold on the market fairly quickly to avoid the risk of gold’s price depreciating.

When the price of gold rises, miners immediately start to see greater profits from selling their ounces on the market. While the costs to mine gold also rise in bull markets, they rise less and at a slower rate.

The result of this is profit expansion: when operationally efficient gold mining companies are able to capture larger profits, resulting in increased operating and free cash flow.

Breakdown of Barrick Gold’s Profit per Ounce of Gold

YearAll-in Sustaining Costs/oz (in USD)Realized Gold Price/oz (in USD)Profit/oz (in USD)
2015$831$1,157$326
2016$730$1,248$518
2017$750$1,258$508
2018$806$1,267$461
2019$894$1,396$502
2020$984$1,748$764

During the current gold bull run which started in 2015, Barrick Gold’s average realized price per troy ounce of gold increased by 50%, while their all-in sustaining costs per troy ounce only went up by 18%.

This has resulted in the company increasing their profit per ounce of gold sold by a staggering 134% over the past six years.

Making the Most of Golden Times

While higher profit margins during bull markets are great, it’s up to the individual company to ensure the extra cash is being used prudently to efficiently support their operations.

Bull markets don’t last forever, and gold miners must use these prosperous times to strengthen their balance sheets, reward shareholders, and reinvest into projects which will provide future value and returns.

Dividend-paying gold stocks increase dividends to reward loyal shareholders, with the average dividend increase of top gold mining stocks in a bull market often doubling.

Over the decades, companies have gotten better at making the most of bull markets in order to be well-guarded for when gold prices stop appreciating, and eventually start declining.

Why Gold Mining Stocks May Still Be Undervalued

Even if gold mining stocks have already seen impressive returns over the past five years, there are some technical indicators which point to them still being undervalued compared to other equities and gold bullion.

  • The top 10 gold mining companies have seen their earnings per share estimates almost triple in the past two years.
  • The top 20 S&P 500 companies have seen around a -15% decline in their earnings per share estimates.

Along with having better earnings per share compared to the top U.S. equities, gold mining stocks may also be undervalued compared to gold bullion.

The gold mining stocks to gold bullion ratio is at historically low levels after having dropped more than 60% following the 2008 financial crisis. While gold bullion is increasingly seen as a safe haven asset for investors, gold miners are still overlooked despite their strong technicals.

Gold and Gold Miners’ Role in the Future Economy

As money printing has been the Federal Reserve’s main answer to an increasingly volatile economic climate, gold and its producers are set to play a crucial role in helping investors preserve their wealth.

Gold has yet again outperformed just about every other asset class in 2020, and gold miners offer even greater returns for those willing to manage the additional risk they present.

Gold mining stocks are much more volatile compared to gold bullion, and have a variety of additional risks dependent on their company structure, jurisdiction of operations, and operational efficiency. But for investors who are looking for exceptional returns in gold bull markets, they can be an alluring option.

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