Almost every mutual fund or ETF fact sheet features the term “drawdown,” often tucked away in a corner with a big negative value beside it. It’s just as vital as the brightly highlighted returns because it indicates how much a portfolio or ETF has fallen from its previous high. Understanding how much you could lose—and how long it takes to recover—are two essential aspects of evaluating your portfolio.
For this newsletter, I decided to examine the drawdowns of six major sector ETFs. I analyzed the last 25 years of data, looking at both historical drawdowns and positive runs to understand what they could signify for your portfolio. Technology and Financials will destroy you in a crisis. Healthcare barely flinches. Energy assures pure chaos. And everything else falls somewhere in between.
Here's what you need to know about how deep, how long, and how often each sector crashes—and what they return when the cycle turns.
Sector-by-Sector Breakdown
Here's the raw data. Max drawdown tells you the worst peak-to-trough loss. Duration shows how long it took to hit bottom. Omega shows risk-adjusted returns. Worst continuous slump and best continuous run reveal volatility patterns.
Complete Drawdown Metrics Table
Sector | Max Drawdown | Drawdown Duration | Peak → Valley | Omega | Worst Slump | Best Run |
|---|---|---|---|---|---|---|
Technology (XLK) | -80.4% | ~30 months | Apr 2000 → Sep 2002 | 1.31 | -45.5% | +25.9% |
Financials (XLF) | -78.7% | ~21 months | Jun 2007 → Feb 2009 | 1.16 | -29.2% | +17.5% |
Energy (XLE) | -63.9% | ~69 months | Jul 2014 → Mar 2020 | 1.21 | -53.2% | +94.2% |
Industrials (XLI) | -56.8% | ~17 months | Oct 2007 → Feb 2009 | 1.35 | -23.7% | +24.3% |
Consumer Disc. (XLY) | -54.9% | ~21 months | Jun 2007 → Feb 2009 | 1.37 | -13.4% | +30.5% |
Healthcare (XLV) | -35.6% | ~15 months | Dec 2007 → Feb 2009 | 1.37 | -21.1% | +20.5% |
What Each Sector Actually Does in a Crisis
Technology (XLK): Highest Upside, Deepest Crashes
Downside Deviation: 19.94
Downside Std. Dev.: 19.25
Longest Down-Streak Return: –45.54%
The dot-com bust was an existential event for tech, as it devastated tech. It took until 2017 to reclaim its prior peak, which is by far the longest recovery (14 years or 172 months). Tremendous upside since then, but if historical context tells you anything, it is the riskiest and most volatile sector. The 2022 drawdown wasn't as severe, but it still made the portfolios bleed.
Financials (XLF): Capital Structure Risk Kills You
Downside Deviation: 17.16
Downside Std. Dev.: 15.71
Longest Down-Streak Return: –29.24%
The 2008 financial crisis nearly wiped out the entire sector. Banks, insurance companies, brokerages—all got crushed. Financials are highly cyclical and levered to credit conditions. When credit freezes, they collapse.
The weakest Omega ratio in the group confirms that Financials deliver poor risk-adjusted returns over full cycles. You get moderate upside with fatal downside. And more importantly, the systemic risk shows up in the volatility spread between down and up streaks.
Energy (XLE): The Wild Card
Downside Deviation: 3.67
Downside Std. Dev.: 4.23
Longest Down-Streak Return: –53.15%
Energy is pure commodity chaos. The best up-streak (+94%) and one of the worst drawdowns (-64%). The 2014-2020 oil collapse took six years to bottom out. That's 69 periods of pain before recovery even started.
When oil rallies, energy stocks explode. When oil collapses, they get destroyed. This isn't a buy-and-hold sector for most investors. It's tactical—small allocations timed around commodity cycles.
Industrials (XLI): Cyclical But Predictable
Downside Deviation: 15.81
Downside Std. Dev.: 15.41
Longest Down-Streak Return: –23.67%
Industrials are closely tied to capital expenditures (capex) spending and global trade. They get hit hard in recessions but recover with economic rebounds. The 2008 drawdown was severe (-57%), but recovery was faster than Energy or Financials.
A solid omega ratio (1.35) indicates decent risk-adjusted returns. Reasonable cyclical exposure without the extreme volatility of Energy or the systemic risk of Financials. Textbook example of a cyclical sector.
Healthcare (XLV): The Defensive Champion
Downside Deviation: 17.75
Downside Std. Dev.: 15.90
Longest Down-Streak Return: –21.13%
Healthcare was barely affected during the financial crisis compared to other sectors, down 36%, while Financials and Tech lost 80%, the shortest, worst continuous slump (-21%) in the group.
The highest Omega ratio (1.37) confirms superior risk-adjusted returns. This is your defensive anchor. Despite the lower upside, the downside deviation is notably smaller than that of Tech or Financials, indicating resilience.
Consumer Discretionary (XLY): Cyclical Demand, Strong Rallies
Downside Deviation: 18.31
Downside Std. Dev.: 17.89
Longest Down-Streak Return: –13.42%
The consumer discretionary sector was severely impacted in 2008 but rallied strongly during the recovery. The shortest and worst continuous slump (-13.4%) suggests less sustained downward pressure than other cyclicals.
Strong Omega (1.37) and solid best run (+30.5%) make this a reasonable growth-tilted cyclical. Still cyclical risk, but better risk-adjusted returns than Energy or Financials.
Bottom Line
Healthcare and Consumer Discretionary offer the best risk-adjusted returns (Omega 1.37). Tech and Energy deliver excitement—and pain. Financials lag on every metric.
Build your core around low-drawdown sectors. Add growth where you can stomach volatility. Use Energy tactically, if at all. And remember: the worst drawdown in history is always one crisis away. Position accordingly.
You can try analyzing your portfolio’s historical drawdown with websites like Portfolio Optimizer and Sharesight.
