While the S&P 500 lost 19% on the year, the 10 top-performing ETFs of 2022 gained between 44% and 99%.
While there’s a lot to say about the volatility and challenges on Wall Street across 2022, two simple themes pretty much sum it up: The S&P 500 as a whole had its worst year since 2008, and perhaps the only sector that provided a bright spot amid the mayhem was energy. Of course, even oil and gas stocks lost their grip over the final months of the year as inflationary pressures abated and the big run-up in prices caused by the war in Ukraine became the “new normal.” But the following 10 exchange-traded funds (most of them related to energy) delivered in a big way across the calendar year, with returns of at least 44% — without using leverage, and without relying on strategies that bet against the market.
iShares US Energy ETF (ticker: IYE)
This first offering on our list is a fairly straightforward energy sector fund, with about $2 billion in assets and a short list of about 40 of the top stocks in the sector. Unsurprisingly, that means a heavy reliance on the Big Oil icons most investors are familiar with like Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhilips (COP). In fact, these three players represent about 46% of all assets between them. That kind of “top heavy” approach can be bad if one of these picks stumbles, but in many ways IYE’s reliance on the largest and less volatile plays in the space helped it hang on to returns that other funds had let slip by the end of the year.
2022 Return: 44%
Invesco Dynamic Oil & Gas Services ETF (PXJ)
In contrast to the rather simplistic IYE fund that is a market-cap weighted index fund of top energy companies, PXJ instead thoroughly evaluates companies based on a variety of investment data including price momentum, earnings momentum and valuation metrics. Then, it hand-picks a list of 30 U.S. companies that are the cream of the crop in the energy sector, and rebalances once per quarter to make sure it stays in only the top oil and gas stocks. Dynamic and active management is a double-edged sword, since most research shows it’s very hard to beat a standard list of stocks. However, PXJ did precisely that in 2022 with impressive returns and a mix of both big name stocks like Halliburton Co. (HAL) as well as under-the-radar energy stocks like U.K.-based energy services firm TechnipFMC PLC (FTI).
2022 Return: 44%
Fidelity MSCI Energy ETF (FENY)
This Fidelity fund takes us back to the rather straightforward variety of energy index funds. It’s large, with almost $2 billion under assets at present and a deep list of components that numbers about 120 different stocks right now. It’s also cheap thanks to a hands-off and no-nonsense approach, with an expense ratio of 0.084%, or just $8.40 per year on every $10,000 invested. That makes it one of the cheapest index funds out there — which may have helped it edge out other similar ETFs that didn’t make the cut on the year. This combination of diversification and low fees helped it outperform even other energy ETFs and log one of the best returns of 2022 among ETFs.
2022 Return: 46%
iShares US Oil Equipment & Services ETF (IEZ)
Looking beyond just the broad energy funds, the $300 million IEZ fund from iShares digs deeper into the sector with a list of only equipment and service providers. That means integrated giants like ExxonMobil are left out, as are the smaller exploration stocks. Instead, you get a list of companies like Schlumberger NV (SLB), Halliburton and Helmerich & Payne Inc. (HP) that offer rigs, oilfield services and other support functions to the energy sector. Thanks to the high price of oil and gas in 2022, the 30 specialized service companies that make up IEZ did quite well.
2022 Return: 47%
VanEck Oil Services ETF (OIH)
Yet another service-focused ETF, OIH is similar to the prior fund except for modest distinctions: It is significantly larger with $2.5 billion in total assets at present, and it is exclusively focused on U.S.-based corporations as IEZ dabbles in international names. The returns are quite similar for the same reason. Namely, when prices are high and companies with reserves want to drill more, they often can spin up production faster by contracting out these services — and that’s exactly what happened over the last year.
2022 Return: 47%
Energy Select Sector SPDR ETF (XLE)
The leading energy ETF by assets, XLE commands an amazing $39 billion in total assets under management — topping the total assets of the other nine picks on this list. But for all its popularity and its five-star rating from investment research firm Morningstar, XLE isn’t terribly more sophisticated than most of the other options on this list. It has roughly 25 components, led by a mix of familiar integrated Big Oil giants as well as the largest service providers. What it lacks in creativity, however, it more than makes up for with an impressive performance in 2022 that makes it one of the top 10 ETFs of the year.
2022 Return: 48%
SPDR S&P Oil & Gas Equipment & Services ETF (XES)
With about 33 stocks and no holding currently worth more than about 4%, XES is one of the rare “equal weight” offerings in the oil patch. It is specifically limited to oil and gas service providers — that is, companies that offer contract drilling services, mobile onshore and offshore rigs for hire, and other support for the sector. Spreading around the assets means spreading around the risk, so as some energy stocks have stumbled in the last few months, XES has managed to hang on to its significant outperformance in 2022 and log an impressive return.
2022 Return: 50%
Vanguard Energy ETF (VDE)
Bet you didn’t know there were this many energy ETFs! Well, this top Vanguard sector fund is another one — and a popular way to play energy stocks, with about $8 billion under management and a portfolio of about 110 stocks. That includes Big Oil titans like ExxonMobil and Chevron, as well as smaller explorers and infrastructure players. It’s a well-rounded fund and is good for anyone who wants exposure to oil and gas. And thanks to the inflationary pressures of 2022, VDE managed to come in as one of the top-performing ETFs in an otherwise rough market for U.S. stocks.
2022 Return: 51%
Simplify Interest Rate Hedge ETF (PFIX)
Though sophisticated in its approach, the name of PFIX says it all. This fund is designed to operate as a hedge against rising interest rates — profiting even as rates rise. Typically rising rates can pressure stocks because it increases borrowing costs and can slow the general spending of consumers and businesses alike. Furthermore, the face value of bonds drops as rates rise because older debt with lower rates of return gets “discounted” by Wall Street. But with PFIX, investors are getting exposure directly to the rates market via interest-rate options. In other words, when rates go up, so does PFIX. Considering the U.S. Federal Reserve just embarked on its tightest period of monetary policy since the 1990s, it should be no surprise then that PFIX rallied strongly on the year.
2022 Return: 80%
iShares MSCI Turkey ETF (TUR)
After a few years of economic challenges, including Western sanctions against the country, steep inflation and a currency crisis, it appears that 2022 was the year that investors found confidence in Turkey once more. Across 2022, policies began to stabilize the economy, which is projected to grow 3% in 2022 and another 3% in 2023. Admittedly, there’s a lot of risk here as inflation rates are still projected to be as high as 40% in the near term. But while this emerging market is still in the fragile stages of recovery, the returns are quite robust. In 2022, the TUR ETF of top Turkey companies roughly doubled in value.
2022 Return: 99%
10 best-performing ETFs of 2022:
— iShares US Energy ETF (IYE)
— Invesco Dynamic Oil & Gas Services ETF (PXJ)
— Fidelity MSCI Energy ETF (FENY)
— iShares US Oil Equipment & Services ETF (IEZ)
— VanEck Oil Services ETF (OIH)
— Energy Select Sector SPDR ETF (XLE)
— SPDR S&P Oil & Gas Equipment & Services ETF (XES)
— Vanguard Energy ETF (VDE)
— Simplify Interest Rate Hedge ETF (PFIX)
— iShares MSCI Turkey ETF (TUR)
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Update 01/05/23: This story was previously published at an earlier date and has been updated with new information.