Back to top

Image: Bigstock

Combat Fed Rate Hike Woes With These 5 Top-Ranked ETFs

Read MoreHide Full Article

Investors have witnessed a disappointing start to 2022 with dullness on the bourses. Along with rising interest rates, market participants have many other factors to be worried about. The rising cases of the Omicron variant in the United States, hawkish Fed, soft U.S. economic data on manufacturing levels and jobs report remain concerns.

The Federal Reserve has already started tapering the bond purchases, which it expects to complete by March this year. The Fed is expected to begin raising its benchmark interest rate in March. There are possibilities of the Federal Reserve taking a more aggressive approach in raising interest rates.

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 compared with 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 $24.67 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: Value ETFs Looking Attractive Now: Let's Explore).

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 $3.08 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 shown unexpected resilience to the concerns regarding rising Omicron cases and high inflation levels in December. They seem to be optimistic about improving employment conditions and the recovering U.S. economy from the pandemic-led slowdown.

High levels of consumer spending and improving employment conditions kept the retail sector buzzing with opportunities. The U.S. holiday season sales figures are impressive and strong. Going by a Mastercard SpendingPulse report, holiday retail sales in the United States after excluding automotive from Nov 1 through Dec 24 climbed 8.5% year over year.

With AUM of $636 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 1.21% 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 is gradually controlling 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 being triggered by a variety of factors like easing Omicron variant concerns, protests in Kazakhstan and outages in Libya causing supply shortages and less OPEC+ output.

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 $29.81 billion, the fund has an expense ratio of 0.12%. The fund currently carries a Zacks ETF Rank #2, with a High-risk outlook (read: Energy Emerges the Best Sector of 2021: 5 ETFs Up At Least 70%).

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.

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 $8.27 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: 3 Sector ETFs to Win Despite Soft Manufacturing Data).