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Bet on These 5 Top-Ranked ETFs Amid Tough Market Conditions
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Investors are seeing an extremely dull start to 2022 as the major indexes are in the red for the first month of the year. The Dow Jones Industrial Average is on track to witness its worst January since October 2020 as it has declined about 4% in January. Going on, the S&P 500 and the Nasdaq Composite indices have also lost about 7% and 10%, respectively, in the first month of the year. Also, the tech-heavy index is approaching its worst month since October 2008 as well as the worst first month of the year ever.
Along with rising interest rates, market participants have many other factors to be worried about. The hawkish Fed, soft U.S. economic data releases, fate of the fourth-quarter earnings season and high inflation levels are also bothering the market participants.
Post the Federal Reserve Open Market Committee’s meeting, Chairman Jerome Powell indicated that the first rate hike since 2018 could be seen as early as March 2022. The Federal Reserve has already started tapering the bond purchases, which it expects to complete by March this year. However, the magnitude and the month of the interest rate hike have not been clearly stated yet.
Against this backdrop, let’s take a look at some top-ranked ETFs that investors can consider to sail through the current market conditions:
Value investing is looking to be more appealing, given the rebounding U.S. economy, the expectation of higher inflation and chances of Fed interest rate hikes. Moreover, value stocks seek to capitalize on market inefficiencies. They can deliver higher returns with lower volatility than their growth and blend counterparts. Additionally, value stocks are less exposed to trending markets and their dividend payouts offer a shield against market turbulence.
iShares S&P 500 Value ETF provides exposure to large U.S. companies that are potentially undervalued relative to comparable companies. With AUM of $24.20 billion, it charges 18 basis points (bps) in expense ratio. The fund carries a Zacks Rank #1 (Strong Buy), with a Medium-risk outlook (read: Top-Ranked Value ETFs to Focus on Fed Rate Hike Worries).
The shift toward a tighter monetary policy will push yields higher, thereby helping the financial sector. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand.
Invesco KBW Bank ETF is based on the KBW Nasdaq Bank Index. The index is a modified-market capitalization-weighted index of companies primarily engaged in U.S. banking activities. It has AUM of $3.50 billion and charges 0.35% in expense ratio. The fund currently carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook(read: 7 ETF Predictions for 2022).
Consumers have been battling the rising inflation levels and Omicron variant concerns. They seem to be upbeat about accelerated coronavirus vaccine rollout and recovering U.S. economy from the pandemic-led slowdown. High levels of consumer spending and improving employment conditions have kept the retail sector buzzing with opportunities.
With AUM of $597.1 million, SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index. XRT holds 109 securities in its basket, with each accounting for not more than 1.39% of assets. Internet & direct marketing retail, apparel retail, automotive retail and specialty stores are the top four sectors with a double-digit allocation each. SPDR S&P Retail ETF charges 35 bps in annual fees. The fund currently carries a Zacks ETF Rank #1, with a Medium-risk outlook (read: Bet on These 5 ETF Areas for 2022).
Investors are closely tracking the energy sector, which is showing strength as global demand and economic growth levels are on the path of recovery from the pandemic lows. The coronavirus vaccine rollout gradually controls the outbreak's spread across the globe. The optimism surrounding the reopening of global economies and increasing demand are painting a rosy picture for the cyclical sectors.
Oil prices have been rising since the beginning of 2022. The upside in crude oil prices is triggered by various factors like easing Omicron variant concerns, supply shortages, and geopolitical tensions in Eastern Europe and the Middle East.
The Energy Select Sector SPDR Fund seeks to provide investment results before expenses that generally correspond to the price and yield performance of the Energy Select Sector Index. With AUM of $32.89 billion, the fund has an expense ratio of 0.10%. The fund currently carries a Zacks ETF Rank #2, with a High-risk outlook (read: ETF Areas to Focus on to Tackle Fed Rate Hike Concerns).
The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are expected to create solid opportunities in 2022. Moreover, the revolutionary 5G platform is expected to act as a major catalyst for semiconductor revenues in the mobile phone market.
A report by trade credit insurer Euler Hermes projects the semiconductor space, which saw sales rising 26% to $553 billion in 2021, to witness another 9% rise in sales and surpass the $600-billion mark for the first time in 2022. In this regard, analysts at Euler Hermes commented that “The current semiconductor cycle has been firing on all cylinders since the industry emerged from its worst recession in 2019,” per a CNBC article.
VanEck Semiconductor ETF provides exposure to 25 securities by tracking the MVIS US Listed Semiconductor 25 Index. The product managed assets worth $7.58 billion and charges 35 bps in annual fees and expenses. The fund currently carries a Zacks ETF Rank #1, with a High-risk outlook (read: 2 Tech ETF Areas Likely to Stay Strong Despite Rising Rate Worries).
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Bet on These 5 Top-Ranked ETFs Amid Tough Market Conditions
Investors are seeing an extremely dull start to 2022 as the major indexes are in the red for the first month of the year. The Dow Jones Industrial Average is on track to witness its worst January since October 2020 as it has declined about 4% in January. Going on, the S&P 500 and the Nasdaq Composite indices have also lost about 7% and 10%, respectively, in the first month of the year. Also, the tech-heavy index is approaching its worst month since October 2008 as well as the worst first month of the year ever.
Along with rising interest rates, market participants have many other factors to be worried about. The hawkish Fed, soft U.S. economic data releases, fate of the fourth-quarter earnings season and high inflation levels are also bothering the market participants.
Post the Federal Reserve Open Market Committee’s meeting, Chairman Jerome Powell indicated that the first rate hike since 2018 could be seen as early as March 2022. The Federal Reserve has already started tapering the bond purchases, which it expects to complete by March this year. However, the magnitude and the month of the interest rate hike have not been clearly stated yet.
Against this backdrop, let’s take a look at some top-ranked ETFs that investors can consider to sail through the current market conditions:
iShares S&P 500 Value ETF (IVE - Free Report)
Value investing is looking to be more appealing, given the rebounding U.S. economy, the expectation of higher inflation and chances of Fed interest rate hikes. Moreover, value stocks seek to capitalize on market inefficiencies. They can deliver higher returns with lower volatility than their growth and blend counterparts. Additionally, value stocks are less exposed to trending markets and their dividend payouts offer a shield against market turbulence.
iShares S&P 500 Value ETF provides exposure to large U.S. companies that are potentially undervalued relative to comparable companies. With AUM of $24.20 billion, it charges 18 basis points (bps) in expense ratio. The fund carries a Zacks Rank #1 (Strong Buy), with a Medium-risk outlook (read: Top-Ranked Value ETFs to Focus on Fed Rate Hike Worries).
Invesco KBW Bank ETF (KBWB - Free Report)
The shift toward a tighter monetary policy will push yields higher, thereby helping the financial sector. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand.
Invesco KBW Bank ETF is based on the KBW Nasdaq Bank Index. The index is a modified-market capitalization-weighted index of companies primarily engaged in U.S. banking activities. It has AUM of $3.50 billion and charges 0.35% in expense ratio. The fund currently carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook(read: 7 ETF Predictions for 2022).
SPDR S&P Retail ETF (XRT - Free Report)
Consumers have been battling the rising inflation levels and Omicron variant concerns. They seem to be upbeat about accelerated coronavirus vaccine rollout and recovering U.S. economy from the pandemic-led slowdown. High levels of consumer spending and improving employment conditions have kept the retail sector buzzing with opportunities.
With AUM of $597.1 million, SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index. XRT holds 109 securities in its basket, with each accounting for not more than 1.39% of assets. Internet & direct marketing retail, apparel retail, automotive retail and specialty stores are the top four sectors with a double-digit allocation each. SPDR S&P Retail ETF charges 35 bps in annual fees. The fund currently carries a Zacks ETF Rank #1, with a Medium-risk outlook (read: Bet on These 5 ETF Areas for 2022).
The Energy Select Sector SPDR Fund (XLE - Free Report)
Investors are closely tracking the energy sector, which is showing strength as global demand and economic growth levels are on the path of recovery from the pandemic lows. The coronavirus vaccine rollout gradually controls the outbreak's spread across the globe. The optimism surrounding the reopening of global economies and increasing demand are painting a rosy picture for the cyclical sectors.
Oil prices have been rising since the beginning of 2022. The upside in crude oil prices is triggered by various factors like easing Omicron variant concerns, supply shortages, and geopolitical tensions in Eastern Europe and the Middle East.
The Energy Select Sector SPDR Fund seeks to provide investment results before expenses that generally correspond to the price and yield performance of the Energy Select Sector Index. With AUM of $32.89 billion, the fund has an expense ratio of 0.10%. The fund currently carries a Zacks ETF Rank #2, with a High-risk outlook (read: ETF Areas to Focus on to Tackle Fed Rate Hike Concerns).
VanEck Semiconductor ETF (SMH - Free Report)
The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are expected to create solid opportunities in 2022. Moreover, the revolutionary 5G platform is expected to act as a major catalyst for semiconductor revenues in the mobile phone market.
A report by trade credit insurer Euler Hermes projects the semiconductor space, which saw sales rising 26% to $553 billion in 2021, to witness another 9% rise in sales and surpass the $600-billion mark for the first time in 2022. In this regard, analysts at Euler Hermes commented that “The current semiconductor cycle has been firing on all cylinders since the industry emerged from its worst recession in 2019,” per a CNBC article.
VanEck Semiconductor ETF provides exposure to 25 securities by tracking the MVIS US Listed Semiconductor 25 Index. The product managed assets worth $7.58 billion and charges 35 bps in annual fees and expenses. The fund currently carries a Zacks ETF Rank #1, with a High-risk outlook (read: 2 Tech ETF Areas Likely to Stay Strong Despite Rising Rate Worries).