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February is not known for good stock returns. A consensus carried out from 1950 to 2021 shows that February ended up offering positive stock returns in 43 years and negative returns in 29 years, per moneychimp.com, with an average negative return of 0.94%. This year too is not an exception.
Global economies and corporates will leave no stone unturned to register a fast rebound from the COVID-19 slump. But rising rate worries in the United States have made the matter worse. The Fed is highly likely to hike rates multiple times this year with the first one expected to be enacted in March. Several research houses have predicated five to seven Fed rate hikes this year.
Meanwhile, some key tech earnings have turned up downbeat. Meta Platforms Inc. lost 26% on Feb 3 post earnings as it lost daily users last quarter for the first time in its history. Not only was user growth across Facebook, Instagram, and WhatsApp essentially flat last quarter, the main Facebook app has seen 1 million daily users depleting in North America, where maximum money comes through advertising.
PayPal (PYPL - Free Report) too slumped about 25% on Feb 2 on inflation concerns. The key driver appears to be weak earnings guidance issued by the company for the first quarter of 2022. PayPal is facing headwinds from "exogenous factors" like the adverse impact of inflation on consumer spending and supply chain issues that are "disproportionately impacting" cross-border payments. In any case, the tech sector has been beaten-down this year on rising rate worries.
Meanwhile, geopolitical tensions are on the rise with the Russia-Ukraine cold-war heating up. Against this backdrop, we highlight a few ETF options that can come across as intriguing bets for the month.
Energy – iShares U.S. Oil & Gas Exploration & Production ETF (IEO - Free Report)
Crude oil prices increased to a more than seven-year high and reported six straight weeks of gains to close out January as the geopolitical turmoil between Russian and Ukraine aggravated concerns over the energy supply crunch.
Tight oil supplies led the six-month market structure for Brent into steep backwardation. Key producers in the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, collectively known as OPEC+, is falling short of the growth in demand. U.S. output has struggled its way higher even as the rig count has been rising, per energy markets analyst at IHS Markit Steeves, as quoted on CNBC. On the demand side, crude imports in China – the world's biggest importer of the commodity – may bounce back as much as 7% this year, per analysts.
The underlying FTSE High Dividend Yield Index consists of common stocks of companies paying out dividends that are generally higher than average. Dividend stocks often beat their non-dividend paying counterparts amid market uncertainty. Stocks with high dividend point to quality investing — a pre-requisite to making money in a volatile environment.
Even if there is capital loss, dividend payments make up for it to a large extent. This Zacks Rank #1 (Strong Buy) VYM offers a juicy 2.75% yield annually. This benchmark-beating yield is satisfactory.
Commodities - Invesco DB Commodity Index Tracking Fund (DBC - Free Report)
The underlying DBIQ Optimum Yield Diversified Commodity Index Excess Return Index is a rules-based index composed of futures contracts on 14 of the most heavily-traded and important physical commodities in the world.
Commodities have historically provided some protection against inflation. They also add diversification benefits to an equity-focused portfolio. The recovery in commodity prices, Goldman Sachs analysts say, “will actually be the beginning of a much longer structural bull market” that could mimic the boom in 1970s, when gold jumped 25 times, as well as the mid-to-late-2000s, when oil topped $140-a-barrel.
Not all areas of the tech sector are lagging. The ETF CIBR tracks the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. Data breaches are rife amid the emerging work-from-home trend. Years’ worth of digital transformation has taken place in the peak of pandemic. Digital uses of the financial transaction are on the rise. Most recently, more than $320 million stolen in a seeming crypto hack. All these facts, in turn, increased the risk of security breaches and threats (read: Cybersecurity ETFs Win in Nasdaq's Worst Week Since 2020).
International – Invesco International Dividend Achievers ETF (PID - Free Report)
While the U.S. economy has been preparing to brace for higher rates, several other developed economies are still practicing low-rate policies. The ETF PID focus majorly on Canada (65.8%), followed by U.K. (9.89%), Brazil (4.59%) and Switzerland (3.65%). Although United Kingdom has been hiking rates, Bank of Canada signaled imminent hikes but still stayed put.
So, investors too afraid of the Fed’s likely aggressive move can have a look at this ETF. These underlying companies of PID have increased their aggregate annual regular cash dividend payments consistently for at least each of the last five consecutive years. PID yields 3.23% annually.
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5 ETFs You Might Fall for This February
February is not known for good stock returns. A consensus carried out from 1950 to 2021 shows that February ended up offering positive stock returns in 43 years and negative returns in 29 years, per moneychimp.com, with an average negative return of 0.94%. This year too is not an exception.
Global economies and corporates will leave no stone unturned to register a fast rebound from the COVID-19 slump. But rising rate worries in the United States have made the matter worse. The Fed is highly likely to hike rates multiple times this year with the first one expected to be enacted in March. Several research houses have predicated five to seven Fed rate hikes this year.
Meanwhile, some key tech earnings have turned up downbeat. Meta Platforms Inc. lost 26% on Feb 3 post earnings as it lost daily users last quarter for the first time in its history. Not only was user growth across Facebook, Instagram, and WhatsApp essentially flat last quarter, the main Facebook app has seen 1 million daily users depleting in North America, where maximum money comes through advertising.
PayPal (PYPL - Free Report) too slumped about 25% on Feb 2 on inflation concerns. The key driver appears to be weak earnings guidance issued by the company for the first quarter of 2022. PayPal is facing headwinds from "exogenous factors" like the adverse impact of inflation on consumer spending and supply chain issues that are "disproportionately impacting" cross-border payments. In any case, the tech sector has been beaten-down this year on rising rate worries.
Meanwhile, geopolitical tensions are on the rise with the Russia-Ukraine cold-war heating up. Against this backdrop, we highlight a few ETF options that can come across as intriguing bets for the month.
Energy – iShares U.S. Oil & Gas Exploration & Production ETF (IEO - Free Report)
Crude oil prices increased to a more than seven-year high and reported six straight weeks of gains to close out January as the geopolitical turmoil between Russian and Ukraine aggravated concerns over the energy supply crunch.
Tight oil supplies led the six-month market structure for Brent into steep backwardation. Key producers in the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, collectively known as OPEC+, is falling short of the growth in demand. U.S. output has struggled its way higher even as the rig count has been rising, per energy markets analyst at IHS Markit Steeves, as quoted on CNBC. On the demand side, crude imports in China – the world's biggest importer of the commodity – may bounce back as much as 7% this year, per analysts.
Dividend – Vanguard High Dividend Yield ETF (VYM - Free Report)
The underlying FTSE High Dividend Yield Index consists of common stocks of companies paying out dividends that are generally higher than average. Dividend stocks often beat their non-dividend paying counterparts amid market uncertainty. Stocks with high dividend point to quality investing — a pre-requisite to making money in a volatile environment.
Even if there is capital loss, dividend payments make up for it to a large extent. This Zacks Rank #1 (Strong Buy) VYM offers a juicy 2.75% yield annually. This benchmark-beating yield is satisfactory.
Commodities - Invesco DB Commodity Index Tracking Fund (DBC - Free Report)
The underlying DBIQ Optimum Yield Diversified Commodity Index Excess Return Index is a rules-based index composed of futures contracts on 14 of the most heavily-traded and important physical commodities in the world.
Commodities have historically provided some protection against inflation. They also add diversification benefits to an equity-focused portfolio. The recovery in commodity prices, Goldman Sachs analysts say, “will actually be the beginning of a much longer structural bull market” that could mimic the boom in 1970s, when gold jumped 25 times, as well as the mid-to-late-2000s, when oil topped $140-a-barrel.
Cyber Security – First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report)
Not all areas of the tech sector are lagging. The ETF CIBR tracks the performance of companies engaged in the cybersecurity segment of the technology and industrials sectors. Data breaches are rife amid the emerging work-from-home trend. Years’ worth of digital transformation has taken place in the peak of pandemic. Digital uses of the financial transaction are on the rise. Most recently, more than $320 million stolen in a seeming crypto hack. All these facts, in turn, increased the risk of security breaches and threats (read: Cybersecurity ETFs Win in Nasdaq's Worst Week Since 2020).
International – Invesco International Dividend Achievers ETF (PID - Free Report)
While the U.S. economy has been preparing to brace for higher rates, several other developed economies are still practicing low-rate policies. The ETF PID focus majorly on Canada (65.8%), followed by U.K. (9.89%), Brazil (4.59%) and Switzerland (3.65%). Although United Kingdom has been hiking rates, Bank of Canada signaled imminent hikes but still stayed put.
So, investors too afraid of the Fed’s likely aggressive move can have a look at this ETF. These underlying companies of PID have increased their aggregate annual regular cash dividend payments consistently for at least each of the last five consecutive years. PID yields 3.23% annually.