Top-performing ETFs of the year (so far).
A combination of high inflation, multiple pending rate hikes and supply chain disruptions created significant headwinds for markets in 2022. Both stocks and bonds have given up much of their previous gains this year, with mega-cap indexes like the Nasdaq-100 suffering substantial corrections. Through the end of April, the S&P 500 lost 13.3%, led by losses in the technology and financial sectors. However, not all assets and sectors were badly impacted. Notably, commodities and the energy sector performed exceptionally well, netting double-digit returns thanks to strong tail winds from a mix of high prices and investor strategy rotation. It’s no surprise that many of the best-performing exchange-traded funds, or ETFs, in 2022 are from that category. This list, which looks at funds with $200 million or more in assets under management, or AUM, includes leveraged ETFs but excludes inverse ETFs. Here are the seven top-performing ETFs so far in 2022.
7. First Trust Natural Gas ETF (ticker: FCG)
FCG holds the stocks of 44 U.S. companies involved in the exploration and production of natural gas. Notably, the ETF excludes companies whose natural gas proved reserves do not meet certain requirements, have too small of a market capitalization (minimum of $538 million at this time) or have poor liquidity. Year to date, the ETF is up 41.5% thanks to the surging price of natural gas, which was exacerbated recently by sanctions on Russia, a top exporter and reserve holder. Top holdings include EQT Corp. (EQT), Occidental Petroleum Corp. (OXY), DCP Midstream LP (DCP) and Antero Resources Corp. (AR), which are largely mid-cap companies operating in the midstream segment of the sector. Currently, FCG has an expense ratio of 0.6% and has attracted $729 million in AUM.
Year-to-date return (through the end of April): +41.5%
6. VanEck Oil Services ETF (OIH)
OIH tracks the MVIS U.S. Listed Oil Services 25 Index. The focus of OIH is on upstream oil sector companies involved in oil equipment, services or drilling activities. The ETF places an emphasis on the most liquid companies in the industry based on market capitalization and trading volume, thus tilting the underlying holdings significantly toward large-cap stocks. Year to date, OIH is up 42.7% thanks to increased global demand for oil and soaring prices. Notable underlying holdings include Halliburton Co. (HAL), Baker Hughes Co. (BKR), and Schlumberger Ltd. (SLB). Most of the ETF — around 71% — is weighted toward U.S. companies, with the remainder from Mexico (19%), the Netherlands (5.3%) and the United Kingdom (4.6%). OIH has AUM of $3.7 billion, with a moderately low expense ratio of 0.35%.
YTD return: +42.7%
5. Invesco Dynamic Energy Exploration & Production ETF (PXE)
PXE tracks an index of 30 U.S. energy sector companies involved in the exploration and production of natural resources. The fund is actively managed, screening holdings based on price momentum, earnings momentum, quality, management action and value. YTD, this strategy has paid off with a return of 45%. Most of PXE’s underlying companies engage in the exploration, extraction and production of crude oil and natural gas from land-based or offshore wells. Others tend to be petroleum refineries that process the crude oil into gasoline and automotive lubricants. Major holdings in PXE include Occidental Petroleum, Valero Energy Corp. (VLO), Comstock Resources Inc. (CRK) and Marathon Petroleum Corp. (MPC). The ETF has an expense ratio of 0.95%, currently waived to 0.63% until at least Aug. 21, 2023, and has AUM of $264 million.
YTD return: +45.0%
4. Simplify Interest Rate Hedge ETF (PFIX)
Simplify is known for its actively managed specialty funds, and PFIX tops its cohort this year with a YTD return of 55.6%. The ETF is designed to hedge against rising long-term interest rates and perform strongly when fixed-income market volatility increases. That strategy has paid off well so far, with the bond markets pricing in a series of 0.5% rate hikes and long-term Treasurys losing substantial value. PFIX achieves this objective using over-the-counter derivatives, which give it exposure equivalent to owning long-term put options on 20-plus-year U.S. Treasury bonds. This strategy provides downside protection and upside potential when interest rates are anticipated to rise. PFIX has attracted AUM of $256 million and has an expense ratio of 0.5%.
YTD return: +55.6%
3. ProShares Ultra Oil & Gas (DIG)
DIG aims to provide two times the daily performance of the Dow Jones U.S. Oil & Gas Index, which tracks the stocks of 36 U.S. companies involved in oil drilling equipment, pipelines, storage, liquid, solid or gaseous fossil fuels, and energy services. As with all leveraged ETFs, DIG is best suited for short-term tactical trading and speculation. A good use for DIG could be swing or day trading to take advantage of sector momentum or commodity price spikes. Long-term holding is inadvisable due to volatility decay and daily resetting leverage, which can drastically alter returns. Leveraged ETFs like DIG are best suited for advanced investors with a high risk tolerance. DIG charges an expense ratio of 0.95%.
YTD return: +77.0%
2. Direxion Daily Energy Bull 2x Shares (ERX)
ERX tracks the broader Energy Select Sector Index. This index holds the stocks of U.S. companies involved in not just oil & gas exploration & production, but also those in energy equipment and services. Notable underlying holdings include Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), which make up roughly 44% of the ETF. The 2x daily leverage is achieved using derivatives called swaps with various banking counterparties. Despite its great year-to-date performance, it’s inadvisable for investors to hold ERX for periods of longer than one day. Long-term returns are likely to drift significantly from the 2x target as the leverage resets daily, especially if the underlying index experiences high volatility. ERX has an expense ratio of 0.95%.
YTD return: +80.7%
1. Direxion Daily S&P Oil and Gas Exploration & Production Bull 2x Shares ETF (GUSH)
Leveraged ETFs tend to strongly outperform when the underlying holdings experience a bull market. Thanks to the recent energy sector outperformance, leveraged ETFs tracking these assets, such as GUSH, have posted very good returns. GUSH aims to provide two times the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index, which equally weights its underlying stocks. The key takeaway here is two times daily performance. Holding for periods longer than a day can produce different returns than that target due to volatility decay and compounding. The effect is more pronounced for leveraged ETFs tracking volatile assets or industries (like the oil & gas area). Despite this, GUSH is up 80.9% year to date. As with most leveraged ETFs, GUSH is rather pricey, with an expense ratio of 1.01%.
YTD return: +80.9%
Best-performing ETFs of 2022:
— Direxion Daily S&P Oil and Gas Exploration & Production Bull 2x Shares ETF (GUSH): +80.9%
— Direxion Daily Energy Bull 2x Shares (ERX): +80.7%
— ProShares Ultra Oil & Gas (DIG): +77.0%
— Simplify Interest Rate Hedge ETF (PFIX): +55.6%
— Invesco Dynamic Energy Exploration & Production ETF (PXE): +45.0%
— VanEck Oil Services ETF (OIH): +42.7%
— First Trust Natural Gas ETF (FCG): +41.5%
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7 Best-Performing ETFs of 2022 originally appeared on usnews.com
Update 05/02/22: This story was published at an earlier date and has been updated with new information.
