These top ETFs offer tactical ways to play a challenging market.
Just when you think you have things figured out, Wall Street always sends you for a loop. After the S&P 500 went on a big run across July and early August to reclaim its highest level in three months, the bottom fell out, and markets now sit more or less where they were back in June — that is, down about 14% on the year. As is always the case, you can read whatever you want into these events. If you want to bet on a recovery, there are plenty of bright spots showing decent momentum right now. Or if you want to find proof the challenges will continue, there’s ample evidence that a defensive approach is working better. Whatever your strategy or outlook, the following seven exchange-traded funds, or ETFs, have something for everyone as we enter September with lingering uncertainty in the stock market.
United States Natural Gas Fund LP (ticker: UNG)
Among the top-performing ETFs year to date in 2022, UNG pulled back in late June only to power to a new 52-week high in August as natural gas prices continue to remain elevated. As we approach the winter months and as European energy supplies are still significantly disrupted by the ongoing conflict in Ukraine, the global natural gas market has moved steadily higher — and prices look like they will stay there for the foreseeable future. UNG is a pure-play ETF on gas, designed to track the daily price movements of natural gas futures traded on the Nymex. This means the fund could be quite a bit more volatile than blue-chip stocks — however, the momentum has clearly been to the upside lately.
VanEck Oil Services ETF (OIH)
If you don’t want to chase a commodity ETF, then consider this VanEck fund that is laser-focused on a list of 25 stocks that service the “upstream” oil exploration industry, including oil equipment, oil services and oil-drilling companies. Yes, crude oil has rolled back a bit from its 2022 highs, but OIH remains up about 30% year to date, and just recently hit its highest levels since mid-June thanks to stabilization in the sector. Again, you’re taking a risky and tactical bet that’s related to energy markets. But unlike UNG, this is an equity investment in big-name stocks like Schlumberger Ltd. (SLB) and Halliburton Co. (HAL), so you’re not simply at the mercy of commodity markets if you want to bet on continued upside for energy as we close out 2022.
Invesco S&P 500 GARP ETF (SPGP)
If you’re unfamiliar with the acronym, GARP stands for “growth at a reasonable price.” In other words, the stocks that make up this ETF are companies that are expanding but not companies where you have to chase them and pay a major premium on shares to get in on the action. For instance, top holdings include utility stock NRG Energy Inc. (NRG) — not exactly a name you think of first when you’re thinking growth investing, but it’s seeing modest expansion and has an attractive valuation. The ETF holds about 75 S&P 500 components that are among the best in this blue-chip index when ranked for both growth scores as well as quality, meaning you can tap into a potential recovery if and when it happens without overpaying for risky investments.
VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC)
Normally, a complex name like that from a lesser-known ETF shop would give many investors pause. But this fund from boutique asset manager VictoryShares actually commands an impressive $2 billion in assets under management, and gets a best-in-class five-star rating from investment advisory firm Morningstar — so there has to be something here. The CDC ETF is focused on equity income (a fancy phrase for dividend stocks) by hand-picking a list of about 100 top stocks. And with a trailing-12-month yield of 3%, this fund definitely delivers an income stream that dividend-hungry investors will be pleased with.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
If you want dividends but are also afraid of another downturn on Wall Street, consider this Invesco fund. SPHD layers on a low-volatility strategy to ensure that its holdings are paying generous distributions while also having what it takes to hang tough in a choppy market environment. Holdings include tobacco giant Altria Group Inc. (MO), telecom company AT&T Inc. (T) and other stable U.S. stocks that have reliable revenue that won’t be disrupted by any cyclical change in consumer or business spending. And with a generous trailing yield of 3.8% at present, you don’t have to sacrifice your income for that stability.
Simplify Interest Rate Hedge (PFIX)
Rising interest rates remain a constant feature of financial news reports, and that’s unlikely to change following Federal Reserve Chairman Jerome Powell’s hawkish language at the much-watched Jackson Hole, Wyoming, symposium. What’s more, Wall Street sentiment seems to be pointing toward another significant rate hike when Fed policymakers meet in September — meaning we may have only seen the beginning of the uptrend in these markets. In order to capitalize on this, this Simplify fund allows investors to profit from rising rates by holding over-the-counter interest rate options. While this asset class is difficult for retail investors to access on their own, this tactical ETF with about $300 million in assets under management allows you to do so in a simple and efficient way.
Vanguard S&P 500 ETF (VOO)
While down 14% or so on the year after rolling back about 3% in the month of August, some investors are ready to swear off stocks entirely. But the fact is that no bear market lasts forever, and a long-term approach to U.S. stocks without overactive trading could be the best weapon in your retirement-planning arsenal. It may not be super sexy, but Vanguard’s VOO S&P 500 index fund is a liquid and cost-effective way to play the all-but-inevitable upside of the stock market — presuming you’re patient enough to buy and hold for years and not just a few days or weeks, of course. Some pundits have already called a bottom after the summer lull and think the market could be turning a corner, so this may be a great way to get in on the ground floor — or close enough to it at least.
7 best ETFs to buy now:
— United States Natural Gas Fund LP (UNG)
— VanEck Oil Services ETF (OIH)
— Invesco S&P 500 GARP ETF (SPGP)
— VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC)
— Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
— Simplify Interest Rate Hedge (PFIX)
— Vanguard S&P 500 ETF (VOO)
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Update 08/31/22: This story was published at an earlier date and has been updated with new information.