Wall Street continues to feel the heat from rising interest rates, persistently high levels of inflation, uncertainty surrounding the Russian-Ukrainian war and the resurgence of COVID-19 cases in China. War and the woes of COVID-19 have resurfaced fears of further disruptions in supply chain distribution. Prices for several commodities are on the rise, intensifying concerns about new high levels of inflation.
The Dow Jones Industrial Average went on a seven-week losing streak (its longest since 2001) last week and was down 2.1% for the week ending May 13. The S&P 500 also saw a six-week decline (its longest since 2011) plunging 2.4%. The tech-heavy Nasdaq Composite Index also fell 2.8% last week.
Commenting on current market conditions, Bill Northey, senior chief investment officer at US Bank Wealth Management, said, “We continue to transition through this interest rate review. So while the US Treasury yield curve continued to rise in anticipation of both higher realized inflation and an adjustment in Federal Reserve policy, we saw a consistent and broad adjustment in asset valuations that has occurred in line with these growing inflation concerns.” CNBC Article.
The world’s largest economy continues to struggle with persistently high levels of inflation. According to the Labor Department’s latest report, the consumer price index (CPI) jumped 8.3% year-over-year in April, beating the already lofty Dow Jones estimate of a increase of 8.1%. The measure, however, compared favorably with the 8.5% rise (the highest since December 1981) in March.
The core inflation index, which excludes volatile components such as food and energy prices, rose 6.2% year over year, beating expectations for a rise of 6%. Rising inflation levels dashed hopes of an inflation spike in March.
Looking at the current environment, let’s look at the two areas of ETFs that can be good investment options: one takes advantage of tighter supply and demand conditions in the crude oil market and the other is a defensive option.
Energy ETFs to bet on
The energy space is a vital investment area, which has captured the interest of market participants since the beginning of the year. The reopening of global economies, the acceleration of the deployment of the coronavirus vaccine and improving labor markets have further boosted the sector. The surge in oil prices due to the Russian-Ukrainian crisis has increased the dynamics of the sector.
In fact, Warren Buffett is deepening his focus on the energy sector, which has been one of the best performing sectors in the S&P 500 in 2022 so far. Buffett has increased his investment in Chevron CVX by 475.6% since the end of 2021. The investment was worth $25.9 billion at the end of Q1 2022, up from $4.5 billion at the end of 2021 ( according to a CNBC article). Chevron pays a 3.6% dividend. Buffett also scooped up 14% of oil giant Occidental Petroleum OXY, worth more than $7 billion, in two weeks in March, according to a CNBC report.
Against the backdrop of the bullish energy sector, let’s look at a few energy ETFs worth adding to your portfolio to boost returns:
SPDR Energy Select Sector Fund XLE
The fund seeks to provide investment results, before expenses, that generally correspond to the price and yield performance of the Energy Select Sector Index. With assets under management of $37.48 billion, the fund has an expense ratio of 0.10% (read: The best sector ETFs to play despite the still expensive valuation of the S&P 500).
iShares US Energy ETF IYE
The fund seeks investment results which generally correspond to the price and yield performance of the Russell 1000 Energy RIC 22.5/45 Capped Gross Index. It has an AUM of $3.67 billion and charges a fee of 0.41%.
Vanguard Energy ETF VDE
The fund seeks to track the performance of the MSCI US Investable Market Energy 25/50 Index. With an AUM of $7.83 billion, the fund charges 10 basis points in fees.
Healthcare ETFs to consider
The healthcare sector is a good defensive investment, as many investors believe consumers will need to buy healthcare products even during difficult and uncertain times. Its non-cyclical nature provides a defensive hedge to the portfolio in a turbulent market environment. Currently, the crisis of the Russian-Ukrainian war and the Fed’s aggressive stance on rate hikes have caused a lot of uncertainty in the markets.
Investors can view the following healthcare ETFs:
The SPDR Healthcare Sector Fund XLV
The SPDR Health Care Select Sector Fund aims to provide investment results which, before expenses, generally correspond to the price and yield performance of the Health Care Select Sector Index. XLV manages an AUM of $36.09 billion and charges 10 basis points (bps) in fees.
iShares US Healthcare ETF IYH
The iShares US Healthcare ETF seeks to track the investment results of an index composed of US healthcare stocks. With an AUM of $2.75 billion, IYH charges 41 basis points in fees (read: 5 top-ranked ETFs that can be good bets now).
Vanguard Healthcare ETFs VHT
Vanguard Health Care ETF seeks to track the performance of the MSCI US Investable Market Health Care 25/50 Index. VHT has an AUM of $15.10 billion and charges 10 basis points in fees (read: 5 safe ETF bets to consider in a lackluster Wall Street).
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Chevron Corporation (CVX): Free Stock Analysis Report
Occidental Petroleum Corporation (OXY): Free Stock Analysis Report
Energy Select Sector SPDR ETF (XLE): ETF Research Reports
Health Sector SPDR ETF (XLV): ETF Research Reports
iShares US Healthcare ETF (IYH): ETF Research Reports
Vanguard Health Care ETF (VHT): ETF Research Reports
iShares US Energy ETF (IYE): ETF Research Reports
Vanguard Energy ETF (VDE): ETF Research Reports
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Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.