Wall Street continues to feel the heat of rising interest rates, persistently high inflation levels, uncertainty surrounding the Russia-Ukraine war and resurging COVID-19 cases in China. The war and COVID-19 woes resurfaced the fears of further disturbances in the supply-chain distribution. The prices of several commodities are on the rise, intensifying worries over further steep inflation levels.
The Dow Jones Industrial Average saw a seven-week losing streak (its longest since 2001) last week and was down 2.1% for the week ending May 13. The S&P 500 also witnessed a six-week decline (its longest since 2011) by dipping 2.4%. The tech-heavy Nasdaq composite Index too slid 2.8% last week.
Commenting on the current market conditions, Bill Northey, senior investment director at the U.S. Bank Wealth Management, said that “we continue to be transitioning through this interest rate driven repricing. So as the U.S. Treasury yield curve has continued to move higher in anticipation of both higher realized inflation and Federal Reserve policy adjustment, we’ve seen a consistent and broad adjustment to asset valuations that has occurred consistent with those rising inflation concerns,” per a CNBC article.
The world’s largest economy continues to struggle with the persistently high-inflation levels. Per the latest Labor Department report, the Consumer Price Index (CPI) jumped 8.3% year over year in April, surpassing the already high Dow Jones estimate of an 8.1% rise. The metric, however, compared favorably with the 8.5% rise (the maximum since December 1981) in March.
The core inflation index, which excludes volatile components, such as food and energy prices, rose 6.2% year over year, beating the expectations of a 6% rise. The rising inflation levels dashed the hopes of inflation peaking in March.
Studying the current backdrop, let’s look at the two ETF areas that can be good investment options: one is gaining from the tightening demand-supply conditions in the crude oil market and the other is a defensive option.
Energy ETFs to Bet on
The energy space has been a vital investment area, holding the interest of market participants since the start of the year. Reopening global economies, ramping up coronavirus vaccine rollout and bettering labor markets further boosted the sector. The spike in oil prices due to the Russia-Ukraine crisis increased the sector’s momentum.
In fact, Warren Buffett deepens his focus on the energy sector, which has been one of the best performing S&P 500 sectors in 2022 to date. Buffett has increased his investment in Chevron (
CVX Quick Quote CVX - Free Report) by 475.6% since the end of 2021. The investment was worth $25.9 billion at the end of the first quarter of 2022 compared with $4.5 billion at 2021 end (per a CNBC article). Chevron pays a 3.6% dividend. Buffett also scooped up 14% of the oil giant Occidental Petroleum ( OXY Quick Quote OXY - Free Report) , worth more than $7 billion, in two weeks during March, according to a CNBC article.
Against the bullish energy sector’s backdrop, let’s look at some energy ETFs that are worth adding to your portfolio for boosting returns:
The Energy Select Sector SPDR Fund ( XLE Quick Quote XLE - Free Report)
The fund seeks to provide investment results, before expenses, that generally correspond to the price and yield performance of the Energy Select Sector Index. With an AUM of $37.48 billion, the fund has an expense ratio of 0.10% (read:
Top Sector ETFs to Play Despite S&P 500's Still-Pricey Valuation). iShares U.S. Energy ETF ( IYE Quick Quote IYE - Free Report)
The fund seeks investment results that generally correspond to the price and yield performance of the Russell 1000 Energy RIC 22.5/45 Capped Gross Index. It has an AUM of $3.67 billion and charges a fee of 0.41%.
Vanguard Energy ETF ( VDE Quick Quote VDE - Free Report)
The fund seeks to track the performance of the MSCI US Investable Market Energy 25/50 Index. With an AUM of $7.83 billion, the fund charges 10 bps in fees.
Healthcare ETFs to Consider
The healthcare sector is a good defensive investment as several investors believe, consumers will have to purchase healthcare products even during tough and uncertain times. Its non-cyclical nature provides defensive coverage to the portfolio amid market turbulence. Currently, the Russia-Ukraine war crisis and the Fed’s aggressive stance on rate hikes caused a lot of uncertainty in the markets.
Investors can look at the following healthcare ETFs:
The Health Care Select Sector SPDR Fund ( XLV Quick Quote XLV - Free Report)
The Health Care Select Sector SPDR Fund seeks to provide investment results that before expenses, correspond generally to the price and yield performance of the Health Care Select Sector Index. XLV manages an AUM of $36.09 billion and charges 10 basis points (bps) in fees.
iShares U.S. Healthcare ETF ( IYH Quick Quote IYH - Free Report)
The iShares U.S. Healthcare ETF seeks to track the investment results of an index composed of U.S. equities in the healthcare sector. With an AUM of $2.75 billion, IYH charges 41 bps in fees (read:
5 Top-Ranked ETFs That Can be Great Bets Now). Vanguard Health Care ETF ( VHT Quick Quote VHT - Free Report)
Vanguard Health Care ETF seeks to track the performance of the MSCI US Investable Market Health Care 25/50 Index. VHT has an AUM of $15.10 billion and charges 10 bps in fees (read:
5 Safe ETF Bets to Consider Amid a Dull Wall Street).