The best and worst ASX sectors of 2021. Why this year could be different – The Motley Fool Australia

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Unpacking the segments of the market that delivered, and those that didn’t in 2021…
Image source: Getty Images
Looking back on 2021, it was certainly an eventful year filled with ups and downs. The prolongation of impacts from COVID-19 impeded some companies, while others managed to march onwards and upwards. To understand exactly how it played out, we’re reviewing the best and worst ASX sectors of last year.
The placing of sectors might be a surprise to investors. Likewise, the sheer scale of returns from some of the market’s sectors in a single 12-month period is mindblowing.
Let’s dive into the breakdown.
Out of the 11 sectors that make up the S&P/ASX 200 Index (ASX: XJO), only two finished the year in the negative. This helped the benchmark index achieve a 13% return, which is well above the historical average.
However, there were three sectors that did a fair chunk of the heavy lifting when it came to last year’s gains. These were telecommunications, consumer discretionary, and financials. All three of these sectors conjured up a remarkable 20%-plus return in 2021.
Zeroing in on telecommunications, this quiet-achieving ASX sector rocketed 28.5% higher last year. Thunderous rallies in Telstra Corporation Ltd (ASX: TLS) and Uniti Group Ltd (ASX: UWL) put this segment of the market out in front.
The next best sector, consumer discretionary, served up a 21.3% return at the end of 2021. Major contributors to this market-beating performance included Domino’s Pizza Enterprises Ltd. (ASX: DMP), Idp Education Ltd (ASX: IEL), Aristocrat Leisure Limited (ASX: ALL), and ARB Corporation Limited (ASX: ARB).
Financials was the third-best ASX sector of the previous year. A rebounding economy and strong demand for home lending boosted the share prices of major banks. The big four all cemented solid gains last year, however, it was Macquarie Group Ltd (ASX: MQG) with a 48% return that bumped up the sector.
Not every sector was as fortunate as the ones mentioned above. The two segments of the share market finishing in the negative last year were energy and information technology.
Firstly, energy suffered a challenging year with large oil and gas companies, such as Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO), dragging. Despite the price per barrel of crude oil increasing 55% in 2021, these giants struggled as they both underwent separate merger deals. The energy sector fell 2% over the 12-month timeframe.
Secondly, tech shares lost favour among investors as fears of rising interest rates loomed. This once high-flying sector shed 2.8% in 2021. Two shares falling from their prior market darling status were Afterpay Ltd (ASX: APT) and Appen Ltd (ASX: APX).
While there are circulating fears of rising interest rates, one expert has offered calm to the concerns. In a possibly contrarian take, Chris Demasi of Montaka Global Investments highlighted his expectation for rates to stay lower for longer.
In conversation with Livewire, Demasi said:
We’ve got populations that are ageing, we’ve got the use of technology that’s intensifying and that boosts productivity, and then on top of that, we’ve got very, very high loads of debt around in the world. And all three of those things say interest rates are going to be lower for longer. 
Based on this, we could potentially see a reversal in the ASX tech sector if rates turn out to be less of a fear than first thought.
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*Returns as of January 12th 2022
Motley Fool contributor Mitchell Lawler owns Afterpay Limited, Appen Ltd, and Macquarie Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited, Appen Ltd, and Idp Education Pty Ltd. The Motley Fool Australia owns and has recommended Afterpay Limited, Appen Ltd, and Telstra Corporation Limited. The Motley Fool Australia has recommended ARB Corporation Limited, Dominos Pizza Enterprises Limited, Macquarie Group Limited, and Uniti Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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