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5 ETF Predictions for 2022

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After logging in the third consecutive year of double-digit gains, Wall Street kicked off 2022 on a high note, with the S&P 500 and the Dow Jones reaching new peaks. An improving economy, rising consumer confidence, and strong corporate earnings are acting as major catalysts though inflation and tightening policies continue to threaten the bulls.

With a skyrocketing stock market, the global ETF industry also boomed in 2021, breaking new records in terms of inflows. This is especially true as investors poured about $900 billion in new assets into U.S.-listed ETFs in 2021, per

Here are some predicted trends for the ETF world that may influence the industry in 2022:

Passive Investing Will Continue to Rule

Like last year, passive investing is expected to be a top theme for 2022 as well. This is especially true as passively managed U.S. funds, which track indexes run by Vanguard Group, BlackRock and State Street and together control more than 75% of all U.S. ETF assets, have been the biggest money pullers last year. Additionally, passively managed funds are attractive courtesy of their unique strategies, creativity, transparency, diversification benefits, enhanced tax competencies, low turnover and, of course, low cost (read: 5 Most Loved ETFs of 2021).

As such, SPDR S&P 500 ETF Trust (SPY - Free Report) , Vanguard S&P 500 ETF (VOO - Free Report) , Vanguard Total Stock Market ETF (VTI - Free Report) , iShares Core S&P 500 ETF (IVV - Free Report) , and Invesco QQQ Trust (QQQ - Free Report) could continue to see strong inflows this year. All these funds have a Zacks ETF Rank #2 (Buy).

Fed Tightening

In the era of Fed tightening, sector ETFs like Financial Select Sector SPDR Fund (XLF - Free Report) , Vanguard Consumer Discretionary ETF (VCR - Free Report) , and Invesco DWA Basic Materials Momentum ETF (PYZ - Free Report) are expected to benefit most. XLF and VCR have a Zacks ETF Rank #1 (Strong Buy) and PYZ carries a Zacks ETF Rank #2.

The Fed signaled a more aggressive unwinding of its pandemic-era monthly bond-buying, setting the stage for three interest rates hikes in 2022 to fight inflation. The central bank plans to buy $60 billion per month of bonds in combined Treasuries and agency mortgage-backed securities starting in January, down from $90 billion in December and $120 billion from the start of the pandemic through November.

Homebuilding to Stay Hot

The housing market will remain hot buoyed by still lower mortgage rates, skyrocketing demand and limited supplies. The thirst for home buying is rising even in the face of increasing housing prices, thus providing huge profits to homebuilders. SPDR S&P Homebuilders ETF (XHB - Free Report) and iShares U.S. Home Construction ETF (ITB - Free Report) seem to be great plays as we move forward into 2022. The duo has a Zacks ETF Rank #2.

Online to Dominate in 1H

Due to the new COVID-19 variant, Omicron, cases have tripled in the past two weeks across the United States to over 400,000 a day, the highest level on record, amid a rush by many Americans to get tested. This will again compel people to stay indoors and work and seek entertainment at home only, bolstering demand for cloud computing, gaming and e-sports, as well as streaming services (read: ETFs to Benefit From a Record Surge in Online Prices).

E-commerce ETFs like Direxion Work From Home ETF (WFH - Free Report) , WisdomTree Cloud Computing Fund (WCLD - Free Report) and Roundhill Streaming Services & Technology ETF SUBZ will get a nice boost. WFH and WCLD have a Zacks ETF Rank #2.

New Inflation Hedge ETF to Go Popular

Prices of almost everything, from raw materials to food to shipping costs have been surging over the past year. The consumer price index (“CPI”) jumped 6.8% year over year in November, the highest level since June 1982 when inflation hit 7.1%. The pandemic-related supply shortages and continued strength in consumer demand continued to push the prices higher. The so-called core inflation, which strips out volatile components such as food and energy prices, rose 4.9% year over year in November — the steepest increase since 1991 (read: Inflation to Stay Hot in Early 2022: ETF Strategies to Win).

To combat the inflationary environment, investors will seek a hedge against inflation through the AXS Astoria Inflation Sensitive ETF PPI launched on Dec 30. The product is actively managed and seeks long-term capital appreciation in inflation-adjusted returns. AXS Astoria Inflation Sensitive ETF provides investors a one-stop inflation strategy with multi-asset exposure to equities, commodities and TIPS.