It’s time for Christmas celebration and decorating the tree is a tradition. Given its significance of goodwill and love in this season of joy, we have built a Christmas tree with the help of ETFs, indicating shining lights and silver bells heading into 2022.

The Tree is Ready!

Let’s build the base first, which is the most valuable part, and of course, the place where all gifts are to be found. There’s nothing’s more fitting than the broad market ETF SPDR S&P 500 (SPY Quick QuoteSPY - Free Report) , which tracks the major U.S. benchmark — the S&P 500 Index — to give a solid foundation to our tree. The index is on pace to snap a three-year win streak and post the worst year since 2008 as it has shed 18.3% this year.

Russia’s invasion of Ukraine, aggressive Fed rate hikes and global growth concerns have roiled the stock market badly. Additionally, a resurgence of COVID-19 cases in China has slowed down economic activities across the country.

The Fed has been on an aggressive tightening spree for more than decades. Fed Chair Jerome Powell raised interest rates for the seventh time this year, taking the benchmark rate to the range of 3.75% and 4.00% — the highest level since 2008. The increase in interest rates has made borrowing expensive, pushed up the cost of buying a new car or house, increased the cost of carrying credit card debt and thus heightened the risk of a recession (read: Play Secret Santa With These ETFs).

However, higher interest rates usually indicate a healthy economy and greater consumer power, thereby benefiting the consumer discretionary sector. Also, banks are in the most advantageous position as they seek to borrow money at short-term rates and lend at long-term rates. If interest rates rise, banks would earn more on lending and pay less on deposits. This would expand net margins and bolster banks’ profits.

Therefore, an ETF from these sectors could be the best option to deck up our Christmas tree. Zacks Rank #2 (Buy) Consumer Discretionary Select Sector SPDR Fund (XLY Quick QuoteXLY - Free Report) and Zacks Rank #1 (Strong Buy) SPDR S&P Regional Banking ETF (KRE Quick QuoteKRE - Free Report) could form the fronds and leaves of the tree.

XLY is the largest and most-popular ETF in the consumer discretionary space, with AUM of $13 billion. It follows the Consumer Discretionary Select Sector Index and charges 10 bps in annual fees. On the other hand, KRE provides exposure to the regional banks’ segment by tracking the S&P Regional Banks Select Industry Index. It holds 144 securities in its basket with AUM of $2.9 billion and an expense ratio of 0.35%.

For the top layer, we have chosen VanEck Vectors Oil Services ETF (OIH Quick QuoteOIH - Free Report) as energy is the best sector of 2022 driven by a rise in oil price. A cooler temperature in the United States and strong holiday travel coupled with a supply crunch will continue to drive oil prices higher, and thus the stocks. OIH is up about 63.8% this year and has a Zacks ETF Rank #2.

At the very top is the star ETF of 2022 — Simplify Interest Rate Hedge ETF (PFIX Quick QuotePFIX - Free Report) . The ETF has risen more than 76% this year and provides a hedge against rising interest rates. With AUM of $339 million, Simplify Interest Rate Hedge ETF invests in long-dated put options on 20-year US Treasury bonds to offer the most liquid and the most cost-efficient way of getting interest rate protection (read: Interest Rate Hedge ETF Wins in 2022: What's Behind the Surge?).

Decoration

With the structure ready, we now have to decorate the tree with bells, candies and lights. While most of the ETFs could be part of this beautification, we have chosen those that have a top Zacks ETF Rank or are currently hot in the market. Notably, iShares Core High Dividend ETF (HDV Quick QuoteHDV - Free Report) will add to the glitter and shine.

Dividend ETFs have become the most popular and fastest-growing category this year, given the market turmoil. These are major sources of consistent income for investors in any type of market though they do not offer dramatic price appreciation. iShares Core High Dividend ETF offers exposure to 75 high-quality and high-dividend stocks by tracking the Morningstar Dividend Yield Focus Index. It has AUM of $12.2 billion and charges 8 bps in fees per year. HDV carries a Zacks ETF Rank #3 and is up 5% this year (read: 10 Most-Loved Dividend ETFs of 2022).

The best ETF that could nicely fit the candy decor is AGFiQ US Market Neutral Anti-Beta Fund (BTAL Quick QuoteBTAL - Free Report) , which has risen 18% this year. The strong trend is likely to continue in 2023, given the bouts of volatility stemming from Fed action and a potential recession. AGFiQ US Market Neutral Anti-Beta Fund has the potential to generate positive returns regardless of the direction of the stock market as long as low-beta stocks outperform high-beta stocks. It invests primarily in long positions in low-beta U.S. equities and short positions in high-beta U.S. equities on a dollar-neutral basis within sectors. AGFiQ US Market Neutral Anti-Beta Fund has AUM of $375.6 million and an expense ratio of 2.53%.

Now, to light up the tree, let’s add value ETFs like Vanguard Value ETF (VTV Quick QuoteVTV - Free Report) that will continue to brighten investors’ portfolio in 2023. Amid the volatility, value products seem to be good choices. Value stocks have strong fundamentals — earnings, dividends, book value and cash flow — but trade below their intrinsic value. These have the potential to deliver higher returns and exhibit lower volatility than their growth and blend counterparts. With AUM of $98.3 billion and an expense ratio of 0.04%, VTV has a Zacks ETF Rank #1.

The Christmas tree of ETFs to brighten 2023 is now ready for investors. May it spread cheer!