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Best-Performing ETF Areas of Q2

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After a downbeat Q1, Wall Street has maintained its lackluster journey in Q2. The first half of 2022 could easily be attributed to the Russia-Ukraine war, red-hot inflation and rising-rate worries. The Fed enacted a steep interest rate hike worth 50 basis points in May and another one of 75 bps in June.

No wonder, many analysts are forecasting an U.S. recession this year as the economy is still striving to recover from the pandemic. Notably, the American economy contracted an annualized 1.5% quarter on quarter in Q1 of 2022, following 6.9% growth in Q4 of 2021. The yield curve inverted many times in the second quarter, signaling recession risks.

The S&P 500 has declined 15% in the past three months while the Dow Jones and the Nasdaq have lost 10% and 19.7%, respectively.  Oil prices have gained moderately as United States Oil Fund, LP (USO) added only 2.7% in Q2. Global slowdown fears probably quelled the demand for oil.

Against this backdrop, below, we highlight a few ETF areas that stood out in Q2

Agriculture

The year can be remembered because of the start of the Russia-Ukraine war. Notably, both countries are commodity-rich and the war has sent prices for energy, grains and metals surging. Plus, overall commodities prices have been rising lately.

Teucrium Corn ETF (CORN - Free Report) and iPath Series B Bloomberg Coffee Subindex Total Return (JO - Free Report) added about 0.5% and 0.4%, respectively, in the past three months (as of Jun 27, 2022).

China

China ETFs were hit hard earlier in the year due to stringent regulatory scrutiny along with tight COVID-control measures and the resultant lockdown. Chinese tech equities started rebounding in late April as the nation’s top political leaders planned on Friday to boost economic stimulus to promote growth. There could also be an easing of the continued clampdown on tech firms.

Global X MSCI China Consumer Discretionary ETF (CHIQ - Free Report) (up 15.8%), KraneShares CSI China Internet ETF (KWEB - Free Report) (up 9.8%) and Invesco Golden Dragon China ETF (PGJ) (up 7.5%) were among the prominent winners.

U.S. Dollar

To contain the red-hot inflation, central banks are tightening policies. The Fed had enacted three rate hikes so far this year and pushed through a total hike worth 150 basis points. Such steep rate hikes boosted the value of greenback in Q2. Invesco DB US Dollar Index Bullish ETF (UUP - Free Report) was up about 5.2% in the past three months.

U.S. Consumer Staples

As the global markets crashed, volatility ETFs ruled. As a result, the demand for safe sectors like consumer staples jumped. Invesco S&P SmallCap Consumer Staples ETF (PSCC - Free Report) (up 2.3%), Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS - Free Report) (up 1.9%) and iShares U.S. Consumer Staples ETF (IYK - Free Report) (up 0.1%) were the winning staples ETFs.

Short-Term U.S. Government Bonds

Rising rate worries are gripping the whole world, crippling the investing scenario again with uncertainty. The Fed rate hike has been extremely pronounced lately. Since short-term bonds are less sensitive to rising rates, SPDR Bloomberg 13 Month T-Bill ETF (BIL - Free Report) added about 0.1% in the past three months. Plus, with faster Fed rate hikes, yields on short-term bonds also rose simultaneously.