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The Best and Worst Performing Themes of 2022

In a challenging year for many stocks, certain themes still prospered — notably oil and gas — while others took the full brunt of macroeconomic headwinds, including the previous stock market darling, disruptive innovation. Here are the funds and shares with the most significant gains and losses.

Best-performing themes

Oil Producers 

Russia's invasion of Ukraine dominated the performance of securities across markets this year. Sanctions and oil shortages sent oil prices skyrocketing, driving outsize performance for oil and gas stocks. 

The Fidelity MSCI Energy Index ETF [FENY] gained 56.9% in the year to 21 December, peaking on 14 November when it reached 76.1% year-to-date gains. 

FENY's top holdings, ExxonMobil [XOM], Chevron [CVX] and ConocoPhillips [COP], gained 81.3%, 52.4% and 62.9%, respectively, in the year to 21 December. However, all three took a hit on 21 November when Oxfam filed shareholder resolutions against them, alleging secretive tax practices. ExxonMobil and Chevron plan to increase spending on energy projects next year, although the output may be flat.

The Energy Select Sector SPDR Fund [XLE] gained 59.2% through 21 December. XLE's top two holdings, ExxonMobil and Chevron, accounted for more than 42% of the fund's holdings. Third-largest holding, Schlumberger NV [SLB], gained 75.4% in the year to 21 December and 44.7% since the start of October.

The iShares US Oil & Gas Exploration & Production ETF [IEO] gained 54.3% through 21 December. ConocoPhillips tops the fund's holdings, with second- and third-largest holdings, EOG Resources [EOG] and Marathon Petroleum Corp [MPC], gaining 53.2% and 81.2% to the close on 20 December, respectively. 

Despite a positive year, improved national energy security, recessionary fears and a slowdown of Chinese demand have provided a bearish December for oil and gas stocks.

Solar 

The drive towards energy security and reduced reliance on Russian-led oil markets has boosted clean energy stocks, particularly solar. The US and France are among the nations to have passed significant solar-boosting legislation this year, and the sector has thrived. Solar power is expected to overtake coal-generated power by 2027, according to a recent report from the International Energy Agency (IEA).

Solar stocks such as First Solar [FSLR], Enphase Energy [ENPH] and Daqo New Energy [DQ] have basked in the sector's growth, gaining 79.7%, 61.7%, and 9.8%, respectively, as of 21 December. As of 7 July, Daqo was up 91% for the year, but reduced supply and rising polysilicon prices in China prompted a sharp fall-off in the year's second half.

All three stocks are held by the Invesco Solar ETF [TAN], with First Solar and Enphase the top and third-largest holdings, respectively, as of 19 December. The fund fell 25.2% to 12 May, before rallying 56.5% to 10 August. As of 21 December, TAN has broken even for the year with gains of 0.2%. 

Clean Energy 

While solar has been the big winner, clean energy stocks across the board have had a positive year. In recent weeks, California's first-ever offshore wind lease auction reached $757.1m in bids, while Australia's government has also provided backing for expanding wind and solar capacity.

The iShares Global Clean Energy ETF [ICLN] closed on 20 December down 4% for the year, though as of 12 September, it was up 9.8%. ICLN's top holding is Enphase Energy, while numbers two and three, Vestas Wind Systems [VWS.CO] (pictured above) and Iberdrola SA [IBE.MC], fell 4.3% and gained 8.5% to 21 December, respectively.

Ormat Technologies [ORA], a leading geothermal company, and Bloom Energy Corp [BE], a manufacturer of solid oxide fuel cells, have performed relatively well in the space this year, gaining 9.9% and falling 6.3% respectively to 21 December.

Worst-performing themes

IPOs

Given that some of the year's top-performing stocks and funds have posted negative returns, it is no surprise that equities have generally had a torrid year. The S&P 500 fell by 19.8% to 21 December.

One knock-on effect of these poor returns has been an unfriendly environment for initial public offerings (IPOs). According to data from EY, IPO volumes fell 45% year-over-year, with proceeds falling 61%.

Entrepreneurs can be forgiven for postponing plans to go public this year, given the poor performance of many recent debuts. The Renaissance IPO ETF [IPO], which tracks an index of stocks that have recently IPOed, fell 57% in the year to 21 December. The fund's three-largest holdings, Snowflake [SNOW], Airbnb [ABNB] and Coupang [CPNG], fell 58.3%, 47.4%, and 42.3%, respectively.

The largest IPO of the year — that of LG Energy Solution Ltd [373220.KS] — took place in January, raising $10.7bn. Since then, only one IPO, that of Dubai Electricity & Water Authority [DEWA.AE] has raised even half as much in funding. LG Energy fell 20.1% between its debut on 27 January and 21 December. Dubai Electricity and Water fell 9.7% since its launch on 15 June.

Cannabis 

Cannabis stocks rode high during 2021 on hopes that president Joe Biden's administration would legalise the drug at the federal level. That hasn't materialised, and the stocks have suffered. Aurora Cannabis [ACB] dropped 82.6% in the year to 21 December, while Canopy Growth Corp [CGC] was down 70.8%.

Cannabis ETFs have been a popular trend for thematic investors over recent years, but these, too, have suffered during 2022. The Cannabis ETF [THCX] fell 69.6% to 21 December, while the AdvisorShares Pure Cannabis ETF [YOLO] fell 71.2%. Both funds hold Canopy Growth, and THCX also holds Aurora; its top three holdings, AFC Gamma [AFCG], Nova Cannabis [NOVC.TO], and Cronos Group [CRON] fell 19.8%, 72.85% and 32.7% in the year to 21 December.

YOLO's second-largest holding, Jazz Pharmaceuticals [JAZZ], was a rare high performer in the theme, with gains of 22.5%. Its third- and fifth-largest holdings, Village Farms International [VFF] and Tilray Brands [TLRY], fell 78.3% and 59.7%, respectively.

Disruptive Innovation 

It has been a challenging year for disruptive innovation funds, particularly those of Cathie Wood's ARK Invest. The flagship ARK Innovation ETF [ARKK] is down 66% in the year to 21 December, while more specialised funds such as the ARK Next Generation Internet ETF [ARKW] and the ARK Fintech Innovation ETF [ARKF] fell by 67.1% and 65%, respectively.

Block Inc [SQ] is held by all three funds and fell 62% in the year to 21 December. Roku [ROKU], the third-largest holding in ARKW and fourth-largest in ARKK, fell 81.2%, with payment and entertainment providers both hit by squeezes on consumer spending during the year. Meanwhile, the end of pandemic conditions has spelled bad news for stocks like Zoom Video Communications [ZM], held by ARKK and ARKW, which fell 62.7%.

While stocks in the disruptive innovation space are troubled in the current macroeconomic climate, Wood remains confident that they are in "deep value territory," elaborating that Ark "take[s] advantage of volatility during corrections and concentrate our portfolios toward our highest conviction stocks."

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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