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Top-Ranked ETFs That Beat the Market in Q3

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The third quarter was marked with heightened volatility and uncertainty for the stock markets. After logging the best month since July 2020, the Wall Street rally fizzled in August on aggressive Fed rate hike speculation. This has pushed the major indices to end the quarter with losses.

While there have been losers in many corners of the space, we highlight five ETFs from different industries that have gained in the third quarter. These have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). The funds are, namely, S&P Kensho Cleantech ETF (CTEX - Free Report) , iShares North American Tech-Multimedia Networking ETF (IGN - Free Report) , SPDR S&P Biotech ETF (XBI - Free Report) , Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) and Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) . These are likely to continue outperforming should the trends prevail.

How Markets Fared in Q3

July was a banner month for the U.S. stock market thanks to better-than-expected corporate earnings reports and falling bond yields that brought back the lure for riskier assets. However, the bullishness faded with the Fed’s aggressive rate hikes (read: Stocks' Best Month Since 2020: Top ETF Areas of July).

Fed Chair Jerome Powell raised interest rates by 75 bps for the three consecutive months of the third quarter, pushing the benchmark interest rate to 3.0-3.25%, the highest level since 2008. With inflation nearly at a 40-year high, the central bank also signaled that additional large rate hikes are on the way.

The increase in interest rates will make borrowing expensive, driving up the cost of buying a new car or house or pushing up the cost of carrying credit card debt, thus slowing down economic growth. Economists warned that the rapid tightening would hurt labor and housing, thereby pushing the economy into recession and impacting the stock markets.

Bouts of weak economic data across the globe added to global slowdown fears. Economic activity in China, the world's second-largest economy, has been declining and the property sector is also suffering. Euro zone inflation also rose to another record high.

We have profiled the above-mentioned ETFs in detail below:

S&P Kensho Cleantech ETF (CTEX - Free Report) – Up 22.9%

S&P Kensho Cleantech ETF invests in companies involved in developing and building green technologies that could power the future in areas like hydro, solar, wind, and geothermal by tracking the S&P Kensho Cleantech Index. It holds 30 stocks in its basket, with each making up for no more than 6% share. S&P Kensho Cleantech ETF has the largest allocations in industrials and information technology sectors.

S&P Kensho Cleantech ETF has accumulated $5.9 million in its asset base and charges 58 bps in annual fees. It trades in an average daily volume of 2,000 shares and has a Zacks ETF Rank #2.

iShares North American Tech-Multimedia Networking ETF (IGN - Free Report) – Up 11.5%

iShares North American Tech-Multimedia Networking ETF provides exposure to telecom equipment, data networking and wireless equipment companies by tracking the S&P North American Technology-Multimedia Networking Index. It holds 21 securities in its basket (read: Cisco Pops on Earnings Beat: ETFs to Buy).

iShares North American Tech-Multimedia Networking ETF has accumulated $98.8 million in its asset base and sees a light volume of around 10,000 shares a day. IGN charges 40 bps in annual fees and carries a Zacks ETF Rank #2.

SPDR S&P Biotech ETF (XBI - Free Report) – Up 8.6%

SPDR S&P Biotech ETF offers equal-weight exposure across 154 biotechnology stocks. It follows the S&P Biotechnology Select Industry Index, charging investors 35 bps in annual fees.

SPDR S&P Biotech ETF has AUM of $6.6 billion and trades in an average daily volume of 11 million shares. XBI has a Zacks ETF Rank #2.

Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) – Up 8.1%

Consumer Discretionary Select Sector SPDR Fund offers exposure to the broad consumer discretionary space and tracks the Consumer Discretionary Select Sector Index. It holds 56 securities in its basket with the key holdings in automobiles, Internet & direct marketing retail, hotels, restaurants and leisure, and specialty retail with a double-digit allocation each.

Consumer Discretionary Select Sector SPDR Fund is the largest and most-popular product in this space, with AUM of $14.7 billion and an average daily volume of around 5 million shares. It charges 0.10% in expense ratio and has a Zacks ETF Rank #1 (read: Consumer Confidence Jumps: ETFs to Add).

Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) – Up 7.9%

Invesco DB US Dollar Index Bullish Fund is the prime beneficiary of a rising dollar as it offers exposure against a basket of six world currencies — euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities.

Invesco DB US Dollar Index Bullish Fund has so far managed an asset base of $2.1 billion while seeing an average daily volume of around 4 million shares. It charges 77 bps in total fees and expenses and has a Zacks ETF Rank #2 (read: 5 ETFs Up 20% or More in the First Nine Months of 2022).

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