Exchange-traded funds (ETFs) exposed to energy, physical commodities and global banks are topping performance tables this year as interest rate jitters send investors clambering out of speculative technology and growth bets.

In a sign of the times, betting against the world’s biggest technology names is finally turning a profit. The ETFS Ultra Short Nasdaq 100 Hedged (ASX: SNAS) is the best performing ETF this year, raking in a 20.5% return and reversing some of the 48.7% loss notched in 2021. This ETF is a geared bet against the Nasdaq 100 index, rising when it falls and vice versa.

Rounding out the top five performing funds were three BetaShares funds investing in crude oil (ASX: OOO), energy companies (ASX: FUEL) and global banks (ASX: BNKS), up between 10% and 20% this year. The ETFS Physical Palladium fund (ASX: ETPMPD), which invests in the metal crucial to the automotive industry, came third with a 16% return.

Commodities and banks are riding shifts in the macroeconomic landscape, says Tim Murphy, Morningstar director of manager selection. Rising prices are forcing the US Federal Reserve to contemplate multiple rate hikes this year, with some commentators forecasting up to seven. Higher rates dampen valuations for high-growth stocks but boost bank margins long squeezed by low rates. Higher inflation is in part due to surging commodity prices, driven up by supply constraints and rebounding demand. Bloomberg’s commodity index is hovering at a decade high.

“Commodity prices are at record highs while rising rates are a positive for banks because that improves their interest margins, the core earnings engine,” he says.

Outperformance extends further back than 2022, with the three BetaShares funds up between 35% and 73% over a one-year horizon.

Bets on resources and a bearish turn dominated the remainder of the top ten funds. The BetaShares US equities Strong Bear Currency Hedged ETF (ASX: BBUS) returned 8% over a period where the silver-rated iShares S&P 500 Hedged ETF (ASX: IHVV) fell 5%. Two ETFS metal ETFs, Physical Platinum (ETPMPT) and the broader Physical Precious Metals Basket ETC (ETPMPM) returned 8.6% and 8.2%, respectively.

Investors tempted by soaring commodity prices should note the sector's historic volatility, says Murphy. Over the past 30 years, commodities delivered an annualised return 1.9%, according to the Rogers International Commodity index.

“Any single commodity is highly volatile up and down. What’s gone up a lot can also go down a lot. If you’re going to invest in these things, make them a very small part of your portfolio.”

Thematic funds clobbered

Investors betting on new industries from cryptocurrency to robotics were left wrongfooted by the shift in risk appetite across markets this year.

Four of the five worst performing ETFs were thematic funds, including the ETFS Hydrogen ETF (ASX: HGEN) and three BetaShares funds invested in the cryptocurrency ecosystem (ASX: CRYP), robotics and artificial intelligence (ASX: RBTZ) and climate change (ASX: ERTH). All were down between 16% and 22% year to date.

The Cboe Volatility Index (VIX), a common measure of risk sentiment, is up 20% year-to-date, despite declining from its multi-year high in late January.

Other thematic funds invested in biotechnology and clean energy also featured among the worst performers.

Poor performance predates the January selloff in technology as investors slowly cooled on speculative bets over the course of last year. Since inception returns are now in double digit negative territory for five of the seven thematic funds on the list.

Local sustainable funds slip

Many sustainability focused investors are nursing big losses after several flagship ESG-conscious funds declined further than large-cap peers.

Australia’s largest sustainable fund led losses, with the BetaShares Australian Sustainability leaders (ASX: ETHI) down 8.8% year to date. It was followed by the VanEck MSCI Australian Sustainable Equity ETF (ASX: GRNV) and the Intelligent Investor Ethical Share ETF (ASX: INES), both down 5.5%.

By comparison, The average fund in the Morningstar Australia and New Zealand equity category declined 2.9%.

Greater volatility and uncertainty saw Australian mid and small cap funds similarly hit hard. The eInvest Better Future (Managed Fund) (ASX: IMPQ) was down 7.2% and the BetaShares Australian Small Companies Select ETF, fell 7%.

Rest of the world dodges market declines

Investors venturing beyond US markets have been rewarded this year as funds exposed to Asia and Europe posted gains amid broad declines on Wall Street.

Platinum Asia (ASX: PAXX) and iShares Asia 50 (ASX: IAA) were up 3.7% and 3.1%, respectively, as battered Chinese technology giants Alibaba, Tencent and JD.com rose in the new year.

UK exposed BetaShares FTSE 100 ETF (ASX: F100) was up 2.8%, buoyed by double digit gains from index heavyweights and oil majors Shell and BP.

Morningstar analysts estimate share markets in China, Japan and the United Kingdom are trading at an overall discount to fair value between 6% and 27%.