Energy and rates still rule Wall Street as Big Tech continues to stumble.
Investors have some reasons to be optimistic as we enter November. After losing more than 9% in September, the S&P 500 rose by about 8% in October thanks to some decent earnings from big-name blue-chip stocks. However, those earnings were anything but perfect as they were driven by large price increases that companies are passing on to already cash-strapped consumers. Worse still, the troubles in Big Tech have persisted to prove that we are a long ways from the “risk on” days of prior years even if some stocks are hanging in there. Despite signs of improvement, it seems naïve to simply revert to the old ways of investing on Wall Street. So if you’re looking to make a trade in November, here are some tactical ETFs to consider that may be tailor-made for the upcoming weeks and months.
Simplify Interest Rate Hedge ETF (ticker: PFIX)
One of the very best-performing ETFs on Wall Street, PFIX is up about 100% year to date thanks to a strategy that delivers profits when interest rates go up. The fund holds interest rate options intended to provide direct upside to this trend — and the U.S. Federal Reserve has raised rates six times this year, sending benchmark interest rates soaring from almost zero to start the year up to roughly 4% at present, with the prospect of more increases to come. While this trend has caused plenty of pain for other investments, PFIX remains a top performer and a safe haven amid the pressures from rising rates.
Invesco DB US Dollar Index Bullish Fund (UUP)
A variation on the prior ETF that profits from rising rates is this Invesco fund that performs well when the U.S. dollar is appreciating in value against other currencies. Specifically, UUP is pegged to futures contracts that pit the dollar against six major world currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. And when the greenback is doing well, these currency futures do well too. Thanks to the relative strength of America in an uncertain economic environment along with its interest rate increases that make our currency even more stable, this Invesco ETF is up more than 15% on the year and continues to set new 52-week highs. That trend doesn’t seem likely to abate in the near future, either.
Energy Select Sector SPDR Fund (XLE)
While energy stocks started the year on a tear thanks to disruptions in global supply related to the Russian invasion of Ukraine, we saw most of the highfliers from early 2022 collapse this summer as crude oil prices rolled back from their highs. But lately, the energy sector has come back big time — with the XLE fund surging back to levels near its prior highs. At more than $40 billion in assets under management, this is among the most popular and liquid ETFs out there to play the energy sector. And with oil back to nearly $90 a barrel, things are looking up for this fund heading into 2023.
iShares MSCI Brazil ETF (EWZ)
A few years ago, Brazil’s economy was in tatters amid government scandals and the hangover from COVID-19. However, recession there ended in 2021 and Brazil’s economy is slowly getting back on track. What’s more, this resource-rich nation exports a lot of raw materials that are more valuable amid global commodity inflation. Brazil is the largest Latin American economy and the most likely to benefit from any sustained recovery in the global economy — so investors looking past the disruptions of 2022 to the future may want to carve out a long-term position in this ETF. In the meantime, EWZ is up by double digits since Jan. 1 to deliver significant gains while the rest of Wall Street has struggled.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
If you are less interested in making a tactical short-term bet and more interested in simply hunkering down to survive the turmoil, SPHD is a great option. As the name implies, this fund marries the high dividend potential of blue-chip stocks with a low-volatility methodology that aims to ensure your portfolio will hang tough even in a downturn. Stocks like tobacco giant Altria Group Inc. (MO) and telecom AT&T (T) make up the portfolio — and while they may not be as dynamic as tech stocks during a bull market, the components of SPHD will provide the stability that many investors are looking for right now. On top of that, the fund yields a generous 4.3%.
Vanguard Short-Term Corporate Bond ETF (VCSH)
Of course, if it’s stability and yield that you’re after, consider this Vanguard bond fund that yields 1.8% on a trailing basis — but when you look at its most recent distribution history, you get a phenomenal yield of 5.4%. What’s more, VCSH is tremendously stable thanks to the fact it profits off of some 2,200 short-term loans in its portfolio. This includes bonds from firms like megabank JPMorgan Chase & Co. (JPM) and tech megacap Microsoft Corp. (MSFT), which are almost certain to repay their debts on time. To be clear, bond funds tend to underperform in a “risk on” bull market where the stock market is soaring. Furthermore, bond funds can often decline when interest rates are rising. The short-term nature of VCSH limits it from some of the volatility risk of other longer-dated bond funds, but the risks are worth noting all the same.
ProShares Short S&P 500 (SH)
If you’re incredibly bearish and want a hedge, or if you’re just incredibly aggressive and are looking for a short-term swing trade, it’s worth noting that you don’t have to limit yourself to investments that go up if you want to make money. This popular inverse fund is designed to deliver the opposite performance of the S&P 500. As a result, SH has risen about 16% so far this year as the S&P has moved by nearly the same amount in the opposite direction. SH has nearly $4 billion in assets right now, making it one of the most popular ways for investors to insure their portfolio against declines. Obviously this fund is a bad investment if the bull market returns, but considering the persistent challenges for the biggest stocks on Wall Street there may be logic in a bit of downside protection in November.
7 best ETFs to buy now:
— Simplify Interest Rate Hedge ETF (PFIX)
— Invesco DB US Dollar Index Bullish Fund (UUP)
— Energy Select Sector SPDR Fund (XLE)
— iShares MSCI Brazil ETF (EWZ)
— Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
— Vanguard Short-Term Corporate Bond ETF (VCSH)
— ProShares Short S&P 500 (SH)
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7 Best ETFs to Buy Now originally appeared on usnews.com
Update 11/03/22: This story was previously published at an earlier date and has been updated with new information.
