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After a strong start to 2022, Wall Street got caught in a nasty web of trading. Fed’s rate hike and rising yields made investors jittery, resuling in a sharp sell-off in high-growth sectors like technology. Resurging Omicron cases and high inflation continued to add to the chaos. The S&P 500 has dropped more than 9% so far in 2022, while the tech-heavy Nasdaq is in the correction territory plunging about 15%.
Against such a backdrop, ETFs from a few sectors have generated positive returns. These are VanEck Vectors Oil Services ETF (OIH - Free Report) , iShares North American Natural Resources ETF (IGE - Free Report) , First Trust Nasdaq Bank ETF (FTXO - Free Report) , First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report) and iShares U.S. Consumer Goods ETF (IYK - Free Report) .
Fed Chair Jerome Powell, in the latest FOMC meeting, stated that "the economy no longer needs sustained high levels of monetary policy support," and that "it will soon be appropriate to raise rates.” The increase in interest rates will make borrowing expensive, driving up the cost of buying a new car or house, or carrying credit card debt, and thus slow the economic growth. According to the Commerce Department’s Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, consumer prices spiked 5.8% last year. This marks the fastest gain since September 1983 (read: 4 Sector ETFs to Bet On in 2022).
However, higher yields indicate investors’ optimism in the economy. A still-improving economy backed by job growth and higher consumer confidence will likely bolster risk-on trade. The GDP grew 6.9% in the fourth quarter, following a 2.3% advancement in the third quarter. With this, the U.S. economy expanded 5.7% year over year in 2021, marking the fastest pace of growth since 1984 and a sharp reversal from the GDP contraction of 3.4% recorded in 2020.
Increased U.S. consumer confidence suggests that the economy would continue to expand in 2022. Additionally, the wider spread of vaccinations, new vaccines as well as solid corporate earnings bode well for the economy and the stock market.
The energy sector remains the outperformer to start the New Year as oil prices are rising further on supply disruptions and unprecedent demand. VanEck Vectors Oil Services ETF tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. It holds 25 stocks in its basket with double-digit allocation each in the top two firms.
With AUM of $2.6 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees and trades in an avaerge daily volume of 937,000 shares. The product has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
iShares North American Natural Resources ETF (IGE - Free Report) – Up 9.3%
With the rise in prices for almost everything, metals and mining companies are also benefiting along with enrgy. iShares North American Natural Resources ETF offers exposure to oil and gas, mining, and forestry companies by tracking the S&P North American Natural Resources Sector Index. It holds 113 stocks in its basket with none holding more than 10.6% of assets. iShares North American Natural Resources ETF has key holdings in integrated oil & gas, oil & gas exploration & production, and oil & gas storage & transportation that accounts for double-digit exposure each.
iShares North American Natural Resources ETF has amassed $524.3 million in AUM and trades in an average daily volume of 255,000 shares. The fund charges 43 bps in annual fees (read: 5 ETF Zones Outperforming to Start 2022).
A rising rate environment is highly beneficial for the financial sector, especially banks. As banks seek to borrow money at short-term rates and lend at long-term rates, the rise in interest rates will earn more on lending and pay less on deposits, leading to a wider spread. This will expand net margins and increase banks’ profits. First Trust Nasdaq Bank ETF follows the Nasdaq US Smart Banks Index, which measures the performance of U.S. companies within the banking industry. It holds 28 securities in its basket and charges 60 bps in annual fees.
First Trust Nasdaq Bank ETF has AUM of $331 million and trades in volume of 141,000 per share on average. The product has a Zacks ETF Rank #2 (Buy).
First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report) – Up 1.8%
With more American being vaccinated, consumer spending has risen, providing a huge boost to FTXG. First Trust Nasdaq Food & Beverage ETF offers exposure to U.S. companies within the food and beverage industry. It tracks the Nasdaq US Smart Food & Beverage Index, holding 30 securities in its basket, with each accounting for less than 9% share.
First Trust Nasdaq Food & Beverage ETF has AUM of $7.8 million and charges 60 bps in annual fees. It sees a meager average daily volume of under 4,000 shares and has a Zacks ETF Rank #3.
iShares U.S. Consumer Goods ETF (IYK - Free Report) – Up 0.8%
Being defensive in nature, the consumer staples sector sees steady demand in the event of an economic downturn due to its low level of correlation with the economic cycles. It generally acts as a safe haven amid political and economic turmoil. iShares U.S. Consumer Goods ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 54 stocks in its basket with key holdings in food beverage tobacco, and household & personal products (read: Here's Why You Should Invest in Consumer Staples ETFs).
iShares U.S. Consumer Goods ETF has amassed $821.5 million in its asset base while trades in a volume of about 28,000 shares. It charges 41 bps in annual fees and carries a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.
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5 Sector ETFs That Outperformed in January
After a strong start to 2022, Wall Street got caught in a nasty web of trading. Fed’s rate hike and rising yields made investors jittery, resuling in a sharp sell-off in high-growth sectors like technology. Resurging Omicron cases and high inflation continued to add to the chaos. The S&P 500 has dropped more than 9% so far in 2022, while the tech-heavy Nasdaq is in the correction territory plunging about 15%.
Against such a backdrop, ETFs from a few sectors have generated positive returns. These are VanEck Vectors Oil Services ETF (OIH - Free Report) , iShares North American Natural Resources ETF (IGE - Free Report) , First Trust Nasdaq Bank ETF (FTXO - Free Report) , First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report) and iShares U.S. Consumer Goods ETF (IYK - Free Report) .
Fed Chair Jerome Powell, in the latest FOMC meeting, stated that "the economy no longer needs sustained high levels of monetary policy support," and that "it will soon be appropriate to raise rates.” The increase in interest rates will make borrowing expensive, driving up the cost of buying a new car or house, or carrying credit card debt, and thus slow the economic growth. According to the Commerce Department’s Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, consumer prices spiked 5.8% last year. This marks the fastest gain since September 1983 (read: 4 Sector ETFs to Bet On in 2022).
However, higher yields indicate investors’ optimism in the economy. A still-improving economy backed by job growth and higher consumer confidence will likely bolster risk-on trade. The GDP grew 6.9% in the fourth quarter, following a 2.3% advancement in the third quarter. With this, the U.S. economy expanded 5.7% year over year in 2021, marking the fastest pace of growth since 1984 and a sharp reversal from the GDP contraction of 3.4% recorded in 2020.
Increased U.S. consumer confidence suggests that the economy would continue to expand in 2022. Additionally, the wider spread of vaccinations, new vaccines as well as solid corporate earnings bode well for the economy and the stock market.
We have highlighted the ETFs in detail below:
VanEck Vectors Oil Services ETF (OIH - Free Report) – Up 23%
The energy sector remains the outperformer to start the New Year as oil prices are rising further on supply disruptions and unprecedent demand. VanEck Vectors Oil Services ETF tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. It holds 25 stocks in its basket with double-digit allocation each in the top two firms.
With AUM of $2.6 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees and trades in an avaerge daily volume of 937,000 shares. The product has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
iShares North American Natural Resources ETF (IGE - Free Report) – Up 9.3%
With the rise in prices for almost everything, metals and mining companies are also benefiting along with enrgy. iShares North American Natural Resources ETF offers exposure to oil and gas, mining, and forestry companies by tracking the S&P North American Natural Resources Sector Index. It holds 113 stocks in its basket with none holding more than 10.6% of assets. iShares North American Natural Resources ETF has key holdings in integrated oil & gas, oil & gas exploration & production, and oil & gas storage & transportation that accounts for double-digit exposure each.
iShares North American Natural Resources ETF has amassed $524.3 million in AUM and trades in an average daily volume of 255,000 shares. The fund charges 43 bps in annual fees (read: 5 ETF Zones Outperforming to Start 2022).
First Trust Nasdaq Bank ETF (FTXO - Free Report) – Up 2.9%
A rising rate environment is highly beneficial for the financial sector, especially banks. As banks seek to borrow money at short-term rates and lend at long-term rates, the rise in interest rates will earn more on lending and pay less on deposits, leading to a wider spread. This will expand net margins and increase banks’ profits. First Trust Nasdaq Bank ETF follows the Nasdaq US Smart Banks Index, which measures the performance of U.S. companies within the banking industry. It holds 28 securities in its basket and charges 60 bps in annual fees.
First Trust Nasdaq Bank ETF has AUM of $331 million and trades in volume of 141,000 per share on average. The product has a Zacks ETF Rank #2 (Buy).
First Trust Nasdaq Food & Beverage ETF (FTXG - Free Report) – Up 1.8%
With more American being vaccinated, consumer spending has risen, providing a huge boost to FTXG. First Trust Nasdaq Food & Beverage ETF offers exposure to U.S. companies within the food and beverage industry. It tracks the Nasdaq US Smart Food & Beverage Index, holding 30 securities in its basket, with each accounting for less than 9% share.
First Trust Nasdaq Food & Beverage ETF has AUM of $7.8 million and charges 60 bps in annual fees. It sees a meager average daily volume of under 4,000 shares and has a Zacks ETF Rank #3.
iShares U.S. Consumer Goods ETF (IYK - Free Report) – Up 0.8%
Being defensive in nature, the consumer staples sector sees steady demand in the event of an economic downturn due to its low level of correlation with the economic cycles. It generally acts as a safe haven amid political and economic turmoil. iShares U.S. Consumer Goods ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 54 stocks in its basket with key holdings in food beverage tobacco, and household & personal products (read: Here's Why You Should Invest in Consumer Staples ETFs).
iShares U.S. Consumer Goods ETF has amassed $821.5 million in its asset base while trades in a volume of about 28,000 shares. It charges 41 bps in annual fees and carries a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.