Over the past several years, the S&P 500 Index has seemed nearly invincible. From 2017-2021, the index outperformed an average of 70% of all US equity and sector exchange-traded funds (ETFs) each year (chart 1). Excess returns were scarce. However, as equities drew down in 2022, the pendulum began to swing in the opposite direction. For the first time since 2016, the S&P 500 Index underperformed more than half of all US equity ETFs. Interestingly, bear markets and/or recessions have historically marked changes in equity market leadership, which can last for several years. In our view, new market leadership may also correspond with more potential for generating excess returns with ETFs.

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