Look beyond the usual suspects this spring with these ETFs.
In 2022, it’s safe to say that the old rules of investing do not apply. Oil prices are back above $100 a barrel, interest rates are climbing and geopolitical unrest has roiled the outlook for a host of companies around the world. In fact, some investors think it’s encouraging that in this kind of environment the S&P 500 index is only down about 5% on the year instead of something much, much worse. But unless you’re already sitting on a giant pile of money, even modest declines are unacceptable. If you’re an investor who’s looking for a way to profit instead of just a way to minimize the damage right now, then you need to look beyond the usual suspects. Here are seven of the best exchange-traded funds, or ETFs, to buy now. Each have put up big gains lately and have a strong outlook this spring.
United States Natural Gas Fund LP (ticker: UNG)
The United States Natural Gas Fund is one of the best-performing ETFs of the year, thanks to its unique makeup. This natural gas is not tied to pipeline companies or exploration companies, and instead is designed to track the daily movements of natural gas futures contracts. This hard link to the commodity itself has resulted in returns of more than 70% year to date for two reasons — first, a general inflationary environment has created tail winds for natural gas, and secondly because disruptions to European supplies amid the Ukraine war have placed a premium on U.S. natural gas exports. As war continues to rage and as inflationary pressures remain high, UNG should continue to do well for the foreseeable future.
VanEck Oil Services ETF (OIH)
A focused list of about 25 energy stocks, OIH cuts out the integrated oil giants like Exxon Mobil Corp. (XOM) and is instead concerned only with oilfield service and exploration stocks that are all about drilling. That includes global giants Halliburton Co. (HAL) and Schlumberger Ltd. (SLB) along with mid-size service stocks. In tough energy environments, oil service stocks are the first to suffer as Big Oil cuts back. But in times like these when oil is expensive and there’s a big incentive to bring as much crude to the market as possible, energy companies throw cash at service providers to make the most of things. With oil above $100 a barrel and with no sign of a change in market dynamics amid disruptions to the Russian energy sector thanks to sanctions, OIH is up more than 50% this year and should continue to thrive.
SPDR S&P Metals & Mining ETF (XME)
Another way to play the ever-rising commodity costs seen in 2022 is to look beyond energy and play the metals market via this SPDR fund. XME is the largest ETF dedicated to major mining stocks, with about $3.5 billion in total assets at present. It has stakes in some of the biggest metal producers on the planet, including the iconic United States Steel Corp. (X) and $64 billion gold miner Newmont Corp. (NEM). However, it takes an “equal weight” approach to 30 or so total holdings to make sure it rebalances and spreads assets around so no single miner represents too much of the portfolio. The result is a fund diversified across stocks while still laser-focused on a sector that’s booming right now; XME is up about 35% year to date in 2022.
Simplify Interest Rate Hedge ETF (PFIX)
This small fund with only about $200 million in assets is highly tactical, so it may not be the best long-term holding for investors. Still, with 30% returns so far this year, it’s undeniable that PFIX has something to offer right now. As the name implies, this fund from boutique investment shop Simplify is designed to hedge against a changing rate environment through quirky holdings including long-dated “over the counter” interest rate options that are incredibly difficult for normal investors to access in their 401(k) or IRA account. There are obviously risks when trading in complex and illiquid assets, but PFIX has delivered handily so far in 2022.
iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX)
A slightly different approach to the complex dynamics of red-hot inflation and rising rates, VXX isn’t a play on the stock market but rather a bet on volatility itself. The “VIX” is the ticker symbol for CBOE’s popular Volatility Index, also known as the “fear index” by many traders as it is linked to S&P 500 option trading and is therefore an indicator of future moves in the market. This iPath fund is tied to short-term movements in that index, meaning it jumps when traders start to worry about what’s going to happen over the next few days. This VXX fund isn’t necessarily a bet on whether the market will go up or down, therefore, just a bet that things are about to get choppy. In a benignly higher market this product could crater as volatility disappears, but considering all the risk factors out there right now that doesn’t seem likely in the near future.
iShares MSCI Brazil ETF (EWZ)
Looking abroad, this Brazil ETF is particularly interesting right now thanks to a convergence of factors in this major Latin American nation. Brazil is the 12th-largest economy in the world, conspicuously behind Russia — at least, before sanctions gutted that latter nation. Furthermore, Brazil is a crucial producer of agricultural products, metals and crude oil that are all in demand right now and seeing rising prices. The icing on the cake is that in 2021, the nation turned the corner after recent challenges including COVID-19. It grew at a brisk 4.6% last year — meaning it is hitting its stride right as the global economy needs it to step up. The result is a nice tail wind for stocks in the region, driving roughly 37% year-to-date gains for EWZ.
iShares Latin America 40 ETF (ILF)
Of course, it’s worth noting that there are a host of impressive economies across Latin America, growing strong thanks to a global economic recovery and increased demand for the goods they export. For instance, Mexico is the 15th-largest economy in the world as measured by gross domestic product and Argentina and Columbia are “frontier” markets that continue to grow by leaps and bounds. If you would rather play a wider grouping of Latin American companies by focusing on 40 major stocks in the region instead of one individual country like Brazil, ILF is worth a look. Top holdings at present include Brazilian oil giant Petroleo Brasiliero SA (PBR), Chilean mega-miner Sociedad Quimica Y Minera de Chile SA (SQM) and iron- and nickel-miner Vale SA (VALE), to name a few.
The 7 best ETFs to buy now:
— United States Natural Gas Fund LP (UNG)
— VanEck Oil Services ETF (OIH)
— SPDR S&P Metals & Mining ETF (XME)
— Simplify Interest Rate Hedge ETF (PFIX)
— iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX)
— iShares MSCI Brazil ETF (EWZ)
— iShares Latin America 40 ETF (ILF)
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