Though it is tempting to only look forward, especially when it feels as though opportunity in the markets is bountiful, I find it is important to incorporate the learnings from what happened in the markets in 2017 into our 2018 thinking. So, let’s not only try to summarize what kind of year 2017 was, but also synthesize insights that can help to inform our actions in 2018. I’ve kept things simple here: 5 key takeaways supported by 2017 data. Here’s to a great 2018!

1. 2017 Was a Strong Year for US and Global Equities

The S&P 500 returned +21.8% in 2017, its best year since 2013. Equities outperformed other major asset classes for the year, including gold (+12.2%), oil (+12.5%), long dated government bonds (+9.0%), corporate bonds (+7.3%), and cash (+0.8%). Volatility declined to even lower levels. Non-US equities (+18.8%) lagged US equities in local currency terms, but outperformed in dollar terms (+27.8%), led by Emerging Markets (+31.0% in local currency/+37.8% in US dollars). Within the S&P 500, foreign Exposure was a strong contributor to performance, with Technology stocks being a particularly strong beneficiary.^1,2

2. Sectors: Tech Was a Big Winner and Tax Reform Benefitted Several Sectors

Tax reform beneficiaries (Telecom, Discretionary, Staples, Financials and Industrials) all outperformed last month, along with Energy and Materials (amid the rally in commodities). Utilities, Health Care and Real Estate were down, and Tech was flat. But for 2017, Tech (+38.8%) was still the biggest winner, contributing nearly 40% of the S&P 500’s return. Materials (+23.8%), Consumer Discretionary (+23.0%), Financials (+22.1%) and Health Care (+22.1%) also led, while Telecom (-1.2%) and Energy (-1.0%) lagged the most.^1,2

3. Factors: Growth Beat Value, But Value Ended 2017 Strong

Growth beat Value by 17 percentage points for the year, the widest spread since 2009. With that being said, the Russell 1000 Value Index beat the Russell 1000 Growth Index in both November and December, likely as a result of the expected impact from tax reform (where earnings growth favors Value over Growth).

4. Sector Disruptors: The Traditional Sectors & Macro Themes

Sector disruptors demonstrated strong returns beyond the broad strength in the Technology sector. Sector disruptors are powerful macro level themes that are changing the status quo of specific sectors. Particularly strong disruption occurred in areas such as Industrials, where robotics and artificial intelligence made further headway in automating manufacturing processes. Lithium and Battery Tech is having a similar impact on the Energy sector, where expectations for electric vehicles grew significantly in 2017.

5. Market-Cap View: Small Caps Stayed Small

The Russell 2000, an index of U.S. small caps, ended Dec, 4Q, and 2017 as the worst-performing size segment, as returns were better up the cap spectrum. Even within the Russell 2000, stocks with the largest market caps outperformed for the quarter and the year. This type of lag has been seen in other late stage bull markets. Health Care (+35%) was the best performing sector in 2017 in the Russell 2000 (vs. Tech in U.S. mid- and large-cap indexes, such as S&P MidCap 400 Index and S&P 500 Index, respectively).

Conclusion

While the bull market likely has more legs, investors taking stock of their portfolios in prep for what’s could come in 2018 may want to:

A. Consider their own footing amid what appears to be a shifting sector landscape.

B. Understand the shift in traditional sectors, and not just because of the upcoming GICS reclassification (Note: The Global Industry Classification Standard (GICS) is an industry taxonomy developed in 1999 by MSCI and Standard & Poor’s (S&P) for use by the global financial community.).

C. Consider going beyond the ordinary with Sector Disruptors.

Sector Disruptor Related ETFs

MILN: The Global X Millennials Thematic ETF seeks to invest in companies that have a high likelihood of benefiting from the rising spending power and unique preferences of the U.S. Millennial generation.

LIT: The Global X Lithium & Battery Tech ETF invests in the full lithium cycle, from mining and refining the metal, through battery production.

FINX: The Global X FinTech ETF seeks to invest in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions.

BFIT: The Global X Health & Wellness Thematic ETF seeks to harness the effects of changing consumer lifestyles by investing in companies geared toward promoting physical activity and well-being.

BOTZ: The Global X Robotics & Artificial Intelligence ETF seeks to invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence (AI), including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles.

SNSR: The Global X Internet of Things ETF seeks to invest in companies that stand to potentially benefit from the broader adoption of the Internet of Things (IoT). This includes the development and manufacturing of semiconductors and sensors, integrated products and solutions, and applications serving smart grids, smart homes, connected cars, and the industrial internet.

SOCL: The Global X Social Media ETF provides investors access to Social Media companies around the world.