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Despite dealing with tight monetary conditions and an unexpected banking crisis, the S&P 500 managed to score big gains in the first half of 2023. The index increased 7.5% in the first quarter and 14% in the first half. Though the breadth of the market rally was narrow in nature, optimism was all around Wall Street.
The S&P 500 and the Nasdaq Composite emerged from a bear market and transitioned into a new bull market in the first half of 2023. Notably, the S&P 500 experienced its strongest performance in four years, while the Nasdaq Composite achieved its best first-half performance in 40 years.
The steady but sluggish decline in the inflation rate and a less-hawkish Fed, better-than-feared corporate earnings and the AI boom contributed to a favorable environment for U.S. stock markets. However, not all stocks and funds joined the impressive rally of the first half of 2023.
Investors may be happy to know that many of these losing ETFs are expected to outperform in the second half of the year, despite losing value so far this year. Notably, the investing backdrop is likely to experience a paradigm shift in the second half of 2023, given at least two rate hikes worth 25 bps each and a ripe corporate valuation. Hence, likely winners have to contend with rising rates all over again.
High-dividend ETFs like VYM can offer higher current income that can make up for capital losses (if there is any) to some extent. The underlying FTSE High Dividend Yield Index consists of common stocks of companies that pay dividends generally higher than average. The fund charges 6 bps in fees and yields 3.18% annually (read: Fed to Hike Rates Further: ETFs to Buy).
The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. The fund charges 7 bps in fees and yields 4.79% annually. High current income will be able to make up for capital losses, if there is any.
The underlying Russell 1000 Health Care RIC 22.5/45 Capped Gross Index measures the performance of the healthcare sector of the U.S. equity market. The fund charges 39 bps in fees and yields 1.16% annually. The sector is non-cyclical in nature and fares better in an uncertain environment. There are mergers going on in the space. The sector has also been exhibiting solid job growth continuously, indicating stronger activity within the space (read: ETFs to Capitalize on Eli Lilly's Buyout of DICE Therapeutics).
The underlying Consumer Staples Select Sector Index seeks to provide an effective representation of the consumer staples sector of the S&P 500 Index. The fund charges 10 bps in fees and yields 2.54% annually. This is yet another safe sector.
First Trust Capital Strength ETF (FTCS - Free Report) – Zacks Rank #2
YTD Return: Down 0.82%
One-Month Return: Up 1.48%
The underlying Capital Strength Index is an equal-dollar weighted index, which provides exposure to well-capitalized companies with strong market positions based on strong balance sheets, a high degree of liquidity, ability to generate earnings growth & record financial strength & profit growth. The fund charges 55 bps in fees and yields 1.46% annually.
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5 ETF Underdogs of 1H Likely to Turnaround in 2H
Despite dealing with tight monetary conditions and an unexpected banking crisis, the S&P 500 managed to score big gains in the first half of 2023. The index increased 7.5% in the first quarter and 14% in the first half. Though the breadth of the market rally was narrow in nature, optimism was all around Wall Street.
The S&P 500 and the Nasdaq Composite emerged from a bear market and transitioned into a new bull market in the first half of 2023. Notably, the S&P 500 experienced its strongest performance in four years, while the Nasdaq Composite achieved its best first-half performance in 40 years.
The steady but sluggish decline in the inflation rate and a less-hawkish Fed, better-than-feared corporate earnings and the AI boom contributed to a favorable environment for U.S. stock markets. However, not all stocks and funds joined the impressive rally of the first half of 2023.
Investors may be happy to know that many of these losing ETFs are expected to outperform in the second half of the year, despite losing value so far this year. Notably, the investing backdrop is likely to experience a paradigm shift in the second half of 2023, given at least two rate hikes worth 25 bps each and a ripe corporate valuation. Hence, likely winners have to contend with rising rates all over again.
ETFs in Focus
Vanguard High Dividend Yield ETF (VYM - Free Report) – Zacks Rank #1 (Strong Buy)
YTD Return: Down 1.60%(as of Jul 10, 2023)
One-Month Return: Up 0.60%
High-dividend ETFs like VYM can offer higher current income that can make up for capital losses (if there is any) to some extent. The underlying FTSE High Dividend Yield Index consists of common stocks of companies that pay dividends generally higher than average. The fund charges 6 bps in fees and yields 3.18% annually (read: Fed to Hike Rates Further: ETFs to Buy).
SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) – Zacks Rank #2 (Buy)
YTD Return: Down 4.1%
One-Month Return: Up 0.87%
The underlying S&P 500 High Dividend Index is designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield. The fund charges 7 bps in fees and yields 4.79% annually. High current income will be able to make up for capital losses, if there is any.
iShares U.S. Healthcare ETF (IYH - Free Report) – Zacks Rank #2
YTD Return: Down 3.7%
One-Month Return: Up 0.31%
The underlying Russell 1000 Health Care RIC 22.5/45 Capped Gross Index measures the performance of the healthcare sector of the U.S. equity market. The fund charges 39 bps in fees and yields 1.16% annually. The sector is non-cyclical in nature and fares better in an uncertain environment. There are mergers going on in the space. The sector has also been exhibiting solid job growth continuously, indicating stronger activity within the space (read: ETFs to Capitalize on Eli Lilly's Buyout of DICE Therapeutics).
Consumer Staples Select Sector SPDR ETF (XLP - Free Report) – Zacks Rank #2
YTD Return: Down 0.3%
One-Month Return: Up 1.73%
The underlying Consumer Staples Select Sector Index seeks to provide an effective representation of the consumer staples sector of the S&P 500 Index. The fund charges 10 bps in fees and yields 2.54% annually. This is yet another safe sector.
First Trust Capital Strength ETF (FTCS - Free Report) – Zacks Rank #2
YTD Return: Down 0.82%
One-Month Return: Up 1.48%
The underlying Capital Strength Index is an equal-dollar weighted index, which provides exposure to well-capitalized companies with strong market positions based on strong balance sheets, a high degree of liquidity, ability to generate earnings growth & record financial strength & profit growth. The fund charges 55 bps in fees and yields 1.46% annually.