These ETFs have outperformed the wider market in 2022.
This year has brought an end to the multiyear bull market. Soaring inflation that hit 9.1% in June was accompanied by numerous Federal Reserve interest rate hikes. The result was a rout in both stock and bond markets. Through Sept. 2, the S&P 500 index is down 17.7%, with the technology-heavy Nasdaq-100 index tumbling 25.7%. The benchmark 10-year Treasury yield soared, climbing above 3.1% as bond prices plummeted. Still, some assets and sectors managed to outperform, notably commodities funds and energy sector stocks. Many of the best-performing exchange-traded funds, or ETFs, of 2022 hail from those categories. This list includes ETFs with $200 million or more in assets under management, with leveraged ETFs included but inverse ETFs and exchange-traded notes excluded. Here are the seven highest-returning ETFs so far in 2022.
7. Simplify Interest Rate Hedge ETF (ticker: PFIX)
The interest rate hike of 75 basis points in July demonstrated the Fed’s commitment to bringing inflation under control. Weeks later, Fed Chairman Jerome Powell delivered a hawkish speech at Jackson Hole, Wyoming, prompting investors to take a so-called risk-off approach, which sent stock and bond prices tumbling further. Despite this, a notable outperformer was PFIX, which has returned 57.2% year to date. PFIX uses a number of over-the-counter, or OTC, derivatives in the form of interest rate swaps and forward contracts. These holdings help the ETF hedge against the risk of rising interest rates. When rates are hiked and bond yields spike, fixed-income volatility tends to increase, with PFIX standing to benefit. The ETF costs an expense ratio of 0.5%.
Year-to-date return (through Sept. 2): +57.2%
6. Invesco Dynamic Energy Exploration & Production ETF (PXE)
PXE tracks the Dynamic Energy Exploration & Production Intellidex index, which selects its holdings based on a set of quantitative criteria. The fund screens potential holdings for price momentum, earnings momentum, quality, management action and valuation. This active management approach has paid off so far, with PXE up 61% year to date without the use of any leverage or derivatives. The ETF has posted a strong return solely by holding high-performing companies involved in the exploration, extraction and production of crude oil and natural gas. Notable constituents include Occidental Petroleum Corp. (OXY) and Marathon Petroleum Corp. (MPC). The fund charges an expense ratio of 0.63%.
YTD return: +61%
5. Direxion Daily S&P Oil and Gas Exploration & Production Bull 2x Shares ETF (GUSH)
Investors looking for concentrated exposure can trade GUSH, which tracks the S&P Oil & Gas Exploration & Production Select Industry Index. Notably, this index is equally weighted. This means large companies like Exxon Mobil Corp. (XOM) are weighted the same as smaller ones like Kosmos Energy Ltd. (KOS), at about 2.5% each. This may be desirable for traders looking to diversify away from market-capitalization-weighted indexes that are concentrated in a few large-cap stocks. Once again, GUSH is leveraged, aiming for a daily target return two times that of its underlying index. This year, the fund is up 92% amid record earnings from the oil and gas industry. GUSH costs an expense ratio of 1%.
YTD return: +92%
4. Direxion Daily Energy Bull 2x Shares (ERX)
State Street offers a series of 11 ETFs that each track a stock market sector represented in the S&P 500 index, called Select Sector Funds. The best-performing one in 2022 has been the Energy Select Sector Index, which holds 21 U.S. energy sector stocks involved in oil and gas exploration and production, as well as energy equipment and services. Notable constituents in this index include XOM and Chevron Corp. (CVX), which account for around 44% of the index. Investors looking for magnified exposure to this index can use ERX for two times daily leverage. If you’re bullish on the short-term performance of the U.S. energy sector, ERX can be a great instrument for day trading. The ETF is up 95.3% year to date and costs an expense ratio of 0.95%.
YTD return: +95.3%
3. ProShares Ultra Oil & Gas ETF (DIG)
DIG tracks the Dow Jones U.S. Oil & Gas Index, comprising 36 domestic stocks involved in oil drilling equipment, pipelines, storage, solid or gaseous fossil fuels, and energy services. This year, the fund is up 96.6%. Like many ProShares funds, DIG is leveraged, offering two times daily exposure. Investors looking for an instrument that tracks the broader energy sector will appreciate DIG, as it does not focus on a single commodity or particular type of energy company. A good use for DIG could be for swing trading during earnings season when multiple energy sector companies are reporting their results. As with many leveraged ETFs, holding DIG long term is inadvisable due to volatility decay and its high expense ratio, which is currently 0.95%.
YTD return: +96.6%
2. United States Natural Gas Fund LP (UNG)
Traders looking for a non-leveraged way of betting on natural gas can use UNG. UNG tracks the price of natural gas via futures contracts, which are derivatives that bet on the future price of an underlying asset. Each month, UNG sells its expiring futures contracts and purchases later-dated ones. This approach provides investors with exposure to natural gas prices but can be inaccurate at times as futures contracts can be priced higher or lower than the spot price due to supply and demand. Year to date, UNG is up 145.9%, but it has performed poorly since inception due to contango, a phenomenon that causes futures-based ETFs to lose value over time. The fund is also structured as a limited partnership, so investors will have to file a Schedule K-1 at tax time.
YTD return: 145.9%
1. ProShares Ultra Bloomberg Natural Gas ETF (BOIL)
The energy crisis in Europe was heightened recently by Russian President Vladimir Putin’s decision to shut down the Nord Stream gas pipelines, which are vital to numerous European Union countries. The effect of this on the markets has been substantial, with natural gas funds receiving a second wind as demand soared. The top-performing ETF on this list, BOIL is up an eye-popping 270% year to date. BOIL tracks the Bloomberg Natural Gas Subindex and uses derivatives to target two times daily exposure. If the index goes up 1%, then BOIL is designed to return 2%, and vice versa if it falls. BOIL is therefore a leveraged ETF, which is intended for short-term traders seeking magnified exposure. The ETF is not suited for a buy-and-hold strategy due to volatility decay affecting its long-term performance. BOIL costs an expense ratio of 1.61%.
YTD return: +270%
7 best-performing ETFs of 2022:
1. ProShares Ultra Bloomberg Natural Gas ETF (BOIL): +270%
2. United States Natural Gas Fund LP (UNG): +145.9%
3. ProShares Ultra Oil & Gas ETF (DIG): +96.6%
4. Direxion Daily Energy Bull 2x Shares (ERX): +95.3%
5. Direxion Daily S&P Oil and Gas Exploration & Production Bull 2x Shares ETF (GUSH): +92%
6. Invesco Dynamic Energy Exploration & Production ETF (PXE): +61%
7. Simplify Interest Rate Hedge ETF (PFIX): +57.2%
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Update 09/06/22: This story was published at an earlier date and has been updated with new information.