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Play Secret Santa With These ETFs

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Wall Street has been on a tumultuous ride ahead of Christmas, with the S&P 500 and the Dow Jones losing about 6% and 5%, respectively, so far this month. The recession fears triggered by the re-emergence of the Fed’s hawkish tone led to risk-off trading. The Bank of Japan's surprise shift in monetary policy has also added to the chaos (read: ETFs to Play BoJ's Surprise Policy Shift).

The weak trend might reverse to end the year, given that there are still hope of a Santa Rally that would provide a boost to the stocks. A Santa Rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) that extends into the first two days of the New Year.

Against such a backdrop, there are some hidden gems, or Secret Santa as we call them, that could surprise investors with big returns this Christmas. We have chosen five ETFs that have underperformed over the past month but have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). These include Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) , First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report) , First Trust Nasdaq Bank ETF (FTXO - Free Report) , SPDR S&P Retail ETF (XRT - Free Report) , and Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) .

The Federal Reserve raised interest rates by 50 bps in its latest meeting and signaled more increases next year to rein in inflation. This marks the seventh rate hike this year. The rate hike brings the benchmark interest rate to 4.25-4.50% — the highest level in 15 years. The central bank now projects at least 75 bps of rate hike, peaking at 5.1% by the end of 2023, 50 bps higher than the previously projected 4.6% back in September. The rate will then be cut to 4.1% in 2024 (read: ETFs to Benefit as Inflation Drops to One-Year Low).

The Bank of Japan made a surprise decision to allow long-term interest rates to rise to 0.5% from a previous cap of 0.25%. The move ended a long period in which Japan was the only major developed-nation central bank not to increase rates.

We have highlighted the details of each ETF below:

Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) – Down 13.4%

Invesco Dynamic Energy Exploration & Production ETF follows the Dynamic Energy Exploration & Production Intellidex Index, which thoroughly evaluates companies involved in the exploration and production of natural resources used to produce energy based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value.

Holding 31 stocks in its basket, Invesco Dynamic Energy Exploration & Production ETF has amassed $298.2 million in its asset base and charges 63 bps in annual fees. It trades in a volume of 139,000 shares and has a Zacks ETF Rank #2.

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report) – Down 12.8%

First Trust NASDAQ Clean Edge Green Energy Index Fund offers exposure to companies engaged in manufacturing, development, distribution and installation of emerging clean-energy technologies, including solar photovoltaics, wind power, advanced batteries, fuel cells, and electric vehicles. It tracks the Nasdaq Clean Edge Green Energy Index and holds 61 stocks in its basket.

First Trust NASDAQ Clean Edge Green Energy Index Fund manages assets worth $1.8 billion and charges 58 bps in fees per year. The product trades in an average daily volume of 198,000 shares and has a Zacks ETF Rank #2.

First Trust Nasdaq Bank ETF (FTXO - Free Report) – Down 9.3%

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 30 securities in its basket and charges 60 bps in annual fees.

First Trust Nasdaq Bank ETF has AUM of $189.4 million and trades in a volume of 45,000 per share on average. The product has a Zacks ETF Rank #2.

SPDR S&P Retail ETF (XRT - Free Report) – Down 8.2%

SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 95 stocks in its basket, with none making up for more than 1.3% share. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in apparel retail, automotive retail, specialty stores, and Internet & direct marketing retail (read: 5 ETFs to Bet On for This Holiday Season).

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $273.8 million and an average trading volume of 4.5 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #2.

Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) – Down 7.6%

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 specialty retail, Internet & direct marketing retail, hotels, restaurants & leisure and automobiles.

Consumer Discretionary Select Sector SPDR Fund is the largest and most-popular product in this space, with AUM of $13.3 billion and an average daily volume of around 5 million shares. It charges 0.10% in expense ratio and has a Zacks ETF Rank #2.

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