2025 ETF Performance Review: QQQ Leads Third Consecutive Year Amid Growth Dominance and Sector Rotation Signals for 2026

The 2025 ETF landscape demonstrated remarkable performance across multiple asset classes, with equity indices delivering strong returns despite evolving market dynamics. QQQ (Invesco QQQ Trust) emerged as the standout performer among major equity ETFs, achieving a 20.77% gain that cemented its position as the top-performing ETF for the third consecutive year [1]. This consistent outperformance reflects the continued dominance of mega-cap technology companies, particularly those positioned at the intersection of artificial intelligence infrastructure and productivity enhancement.

The commodities sector delivered the most dramatic returns, with silver (SLV) recording a 144.66% gain—the strongest performance across all tracked asset classes [1]. Gold (IAU) followed with a 63.95% return, reaching all-time highs in USD terms not seen since 1930 [1]. This precious metals surge reflects investor demand for safety and inflation hedging amid ongoing macroeconomic uncertainty. The divergence between commodities and other asset classes underscores the importance of diversification across asset types, even within an equity-focused investment universe.

International equities demonstrated a significant revival in 2025, with iShares MSCI Emerging Markets (EEM) delivering 33.97% returns and iShares MSCI EFA (EFA) achieving 31.54% [1]. These returns substantially outpaced domestic equity benchmarks, reversing the pattern of US exceptionalism that characterized previous years. The outperformance was driven primarily by currency tailwinds as the US dollar weakened against major currencies, providing an additional return component for US-based investors holding international exposure [1].

The 2025 market revealed several critical performance themes that carry significant implications for 2026 positioning. The growth versus value dynamic proved particularly pronounced, with Vanguard Growth ETF (VUG) delivering 19.40% compared to Vanguard Value ETF (VTV) at 15.27% [1]. This 410 basis point spread represents a meaningful performance differential that favors growth-oriented strategies. However, early 2026 data indicates an emerging rotation, with value ETFs (+3%) beginning to outperform growth ETFs (-0.3%) [1].

The weighting strategy differential proved equally significant. Market-capitalization weighted approaches, exemplified by Vanguard S&P 500 ETF (VOO) at +17.82%, dramatically outperformed equal-weight alternatives like RSP at +11.21% [1]. The 661 basis point spread highlights how concentration in large-cap leaders was rewarded during 2025, suggesting that mega-cap technology and healthcare companies captured disproportionate share of index returns. This concentration dynamic presents both opportunities and risks for 2026 positioning.

Sector-level analysis reveals pronounced dispersion in performance. SPDR S&P Metals and Mining (XME) led sector performance with an exceptional 83.47% return, followed by SPDR S&P Aerospace & Defense (XAR) at 46.15% and SPDR S&P Biotech (XBI) at 35.89% [1]. These returns reflect structural tailwinds from geopolitical uncertainty, defense spending increases, and industrial metal demand driven by AI infrastructure buildout. Conversely, Consumer Staples (XLP at +1.51%) and Real Estate (XLRE at +2.62%) lagged significantly, representing defensive sectors that failed to capture the growth momentum that characterized broader market performance [1].

As of January 22, 2026, QQQ trades at $621.64 with a market capitalization of $416.40 billion [0]. The fund has generated a 16.96% one-year return and an impressive 115.13% three-year cumulative return, demonstrating the powerful momentum in technology-focused equity exposure [0]. Year-to-date performance stands at +1.39%, though recent trading shows mixed signals with the ETF experiencing slight volatility across different timeframes: +0.87% (1-day), -0.62% (5-day), and +0.39% (1-month) [0].

The broader market context reveals important sector rotation dynamics. Recent sector performance data shows Basic Materials (+1.59%) leading market gains, followed by Healthcare (+0.90%) and Consumer Cyclical (+0.44%) [0]. Conversely, Utilities (-1.49%) and Consumer Defensive (-0.57%) represent the worst-performing sectors [0]. This sector rotation aligns with the value-oriented themes emerging in early 2026 data, suggesting a potential shift in market leadership from technology concentration toward more diversified sector exposure.

Market breadth indicators reveal ongoing divergence between indices. The NASDAQ has experienced modest pullback, trading at 23,480.90 compared to January 15 levels of 23,530.02, representing a 2.09% decline [0]. Meanwhile, the Russell 2000 small-cap index has surged to 2,728.72 from 2,674.56, a 2.03% gain that signals growing investor interest in smaller-capitalization companies [0]. This small-cap strength combined with value outperformance represents a notable shift from the growth-dominated 2025 environment.

The 2025 performance data reveals significant concentration risk within technology-focused ETFs. QQQ’s exceptional returns were heavily dependent on mega-cap technology performance, particularly companies positioned at the center of AI infrastructure development [1]. The IMF has noted that “a narrow group [of AI stocks] has become a major driver of the index,” raising important questions about valuation sustainability [4]. This concentration dynamic means that any correction in AI-related earnings or sentiment could disproportionately impact technology-heavy ETF holdings.

The ValuEngine model ratings provide important context for this risk assessment. Technology Select Sector SPDR (XLK) carries a Strong Buy rating with +25.5% upside potential from current levels, suggesting analyst confidence in continued sector momentum [1]. However, this rating is explicitly adaptive based on earnings data, meaning ratings for growth leaders could decline rapidly if AI sector earnings soften [1]. The disconnect between Strong Buy technical ratings and emerging rotation signals creates a complex positioning environment for 2026.

Despite strong equity returns across the board, fixed income market flows reveal persistent investor caution. SGOV (0-3 Month Treasury Bond ETF) received the highest fixed income inflows during 2025, indicating that “safety remains a premium goal for investors” even amid equity market strength [1]. This bifurcated flow pattern—strong equity performance alongside continued Treasury inflows—suggests sophisticated investors are maintaining defensive positioning while participating in equity upside.

The cryptocurrency asset class presented a stark exception to 2025’s positive returns. IBIT (iShares Bitcoin Trust) was the only tracked asset class with negative returns at -6.41% [1]. This underperformance reflects multiple pressures including regulatory uncertainty, valuation corrections following prior years’ explosive gains, and competition from traditional safe-haven assets like gold and silver. The divergence between crypto and precious metals performance highlights evolving investor preferences within alternative asset allocation.

Early 2026 data reveals accelerating rotation signals that warrant careful monitoring. The small-cap Russell 2000 has generated +6.8% returns compared to approximately +1.2% for large-cap indices [1]. This small-cap outperformance, combined with value (+3%) beginning to beat growth (-0.3%), suggests potential broadening of market leadership beyond mega-cap technology concentration [1]. The ValuEngine sector ratings support this rotation narrative, with Technology (Strong Buy) and Healthcare (Buy) receiving the most constructive ratings, while Utilities (Sell) and Energy/Real Estate/Consumer Discretionary (Strong Sell) face significant headwinds [1].

The defense and metals sectors appear to have structural support extending into 2026. XAR (Aerospace & Defense) and XME (Metals & Mining) benefited from geopolitical uncertainty, infrastructure spending commitments, and AI-related industrial demand [1]. These sectors offer potential inflation protection and growth exposure simultaneously, though their 2025 gains may be difficult to replicate given momentum constraints and valuation considerations.

The concentration of QQQ’s holdings in mega-cap technology companies presents substantial downside risk if AI-related earnings disappoint market expectations [1]. The 20.77% 2025 return, while impressive, was heavily concentrated in a narrow group of companies that have driven index performance disproportionately. Any sector rotation away from growth technology toward value and small-cap alternatives would disproportionately impact technology-heavy ETF holdings.

The precious metals rally has reached valuation levels that historically correlate with mean-reversion risk. Silver’s 144.66% return and gold’s 63.95% return at all-time highs present challenging entry points for momentum-focused investors [1]. While structural demand factors (central bank buying, inflation hedging, geopolitical uncertainty) support elevated precious metals prices, the magnitude of 2025 gains increases vulnerability to short-term corrections.

International equity outperformance, while attractive in 2025, carries currency and catalyst dependency. EEM and EFA returns were significantly boosted by falling US dollar values, a dynamic that may reverse if Fed policy or global growth patterns shift [1]. The sustainability of international equity leadership depends on currency tailwinds continuing alongside fundamental economic improvement in developed and emerging markets.

The emerging rotation toward value and small-caps creates opportunity for portfolio rebalancing. Investors with overweight technology exposure may benefit from gradual rotation into sectors with favorable ValuEngine ratings and improving relative momentum. Healthcare (XLV) offers particular interest as a sector receiving Buy ratings with defensive characteristics combined with growth potential [1].

The defense and metals sectors maintain structural support from multi-year policy trends. Government spending commitments on defense, infrastructure, and AI-related industrial capacity create persistent demand drivers for XAR and XME [1]. While 2025’s exceptional returns may not repeat, these sectors may continue outperforming defensive categories like utilities and consumer staples.

The healthcare sector warrants particular attention for 2026 positioning. XLV receives a Buy rating from ValuEngine while offering defensive characteristics that may prove valuable if growth rotation accelerates [1]. The sector’s combination of demographic tailwinds, innovation pipeline, and relative valuation attractiveness positions it as a potential beneficiary of broadening market leadership.

The 2025 ETF performance data reveals a market characterized by concentrated growth leadership, exceptional commodity returns, and emerging rotation dynamics for 2026. QQQ’s third consecutive year as top-performing major ETF reflects mega-cap technology dominance that carries both opportunity and concentration risk. The ValuEngine ratings framework provides sector-level guidance, with Technology (Strong Buy) and Healthcare (Buy) receiving constructive assessments while Utilities (Sell) and several cyclical sectors face significant headwinds.

Early 2026 indicators suggest potential broadening of market leadership beyond technology concentration. The combination of small-cap outperformance (+6.8%) and value leadership (+3% versus growth -0.3%) signals rotation dynamics that may reshape sector positioning for the year ahead. The IMF’s observation about AI stock concentration driving index performance highlights the importance of monitoring earnings quality and breadth indicators as the year progresses.

Fixed income market flows suggest persistent investor caution despite positive equity returns, with Treasury ETFs receiving substantial inflows as investors maintain defensive positioning alongside equity participation. The precious metals rally, while impressive, has reached levels that warrant caution regarding momentum exposure. The cryptocurrency asset class’s exceptional underperformance (-6.41% for IBIT) highlights the importance of distinguishing between structural and cyclical factors when evaluating alternative asset opportunities.

For positioning purposes, the analysis suggests monitoring sector rotation indicators, tracking AI sector earnings quality, and maintaining awareness of concentration risks within technology-heavy ETF allocations. The ValuEngine adaptive rating system provides dynamic guidance that should be monitored regularly as earnings data evolves throughout 2026.