The Federal Reserve finally gave a nod to the first rate hike of a 0.25 percentage point on Mar 16 since December 2018. At the same time, while taking an aggressive approach to increasing the rates, the central bank informed about plans to increase interest rates six times this year. The update went down well with Wall Street. The Dow Jones Industrial Average rose 1.5% on the same day. The other two broad market indices, namely the S&P 500 and the Nasdaq composite were also up 2.2% and 3.7%, respectively, on Mar 16.
The Federal Reserve is aiming at a consensus funds rate of 1.9% by 2022 end (per a CNBC article). This aggressive stance favored the market participants as they believe, it will assist in controlling the hot inflation levels in the longer term. Investors also believe that strong U.S. economy fundamentals might have supported Fed’s decision.
The Russia-Ukraine concerns remain as the conflict enters the fourth week. Now, the U.S. consumers are worried about the ongoing war crisis and its implications on the already high inflation levels. The surge in gasoline prices to record high levels hurt the consumer sentiment. The latest disappointing preliminary consumer confidence readings for early March that have slipped to the lowest level in about 11 years highlight the same.
Studying the current backdrop, let’s take a look at some top-ranked ETFs that investors might wish to bet upon:
iShares S&P 500 Value ETF IVE
Value investing is looking to be more appealing, given the rebounding U.S. economy, the expectation of higher inflation and chances of the Fed’s interest rate hikes. Moreover, value stocks seek to capitalize on the market inefficiencies. They can deliver higher returns with lower volatility than their growth and blend counterparts. Additionally, value stocks are less exposed to the trending markets and their dividend payouts offer a shield against the market turbulence.
iShares S&P 500 Value ETF provides exposure to large U.S. companies that are potentially undervalued relative to comparable companies. With an AUM of $24.70 billion, IVE charges 18 basis points (bps) as expense ratio. IVE carries a Zacks Rank #1 (Strong Buy), with a Medium-risk outlook.
Invesco KBW Bank ETF KBWB
The shift toward a tighter monetary policy will push yields higher, thereby helping the financial sector. This is because the rising rates will help boost profits for banks, insurance companies, discount brokerage firms and asset managers. The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand.
Invesco KBW Bank ETF is based on the KBW Nasdaq Bank Index. The index is a modified-market capitalization-weighted index of companies, primarily engaged in U.S. banking activities. It has an AUM of $2.78 billion and charges 0.35% as expense ratio. KBWB currently carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: Grab Banking ETFs Now to Reap Gains From Hawkish Fed).
SPDR S&P Retail ETF XRT
Consumers have been battling the rising inflation levels and geopolitical concerns for quite sometime. They seem to be upbeat about the accelerated coronavirus vaccine rollout and a recovering U.S. economy from the pandemic-led slowdown. High levels of consumer spending and improving employment conditions kept the retail sector buzzing with opportunities.
With an AUM of $398.8 million, SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index. XRT holds 109 securities in its basket, with each accounting for not more than 1.44% of assets. Apparel retail, internet & direct marketing retail, automotive retail and specialty stores are the top four sectors with a double-digit allocation each.XRT charges 35 bps as annual fees. XRT currently carries a Zacks ETF Rank #1, with a Medium-risk outlook (read: 6 Sector ETFs That Show Promise After Jobs Data).
iShares Global Clean Energy ETF ICLN
Going by a U.S. Energy Information Administration report, electricity consumption in the United States for retail sales and direct use of electricity is projected to rise 0.6% in 2022 and 1.4% in 2023. The same report forecasts electricity generation from renewable sources to rise from 20% in 2021 to 23% in 2022 and to 24% in 2023. Expanding new solar and wind capacities will make up most of the rise in renewable generation. Moreover, technological advancements, increasing investments, growing government initiatives and rising awareness across the globe about clean energy are buoying demand for renewable energy.
iShares Global Clean Energy ETF seeks to track the investment results of an index composed of global equities in the clean energy sector. ICLN has 76 holdings. ICLN’s AUM is $5.21 billion and the expense ratio is 0.42%. ICLN currently carries a Zacks ETF Rank #2, with a Medium-risk outlook (read: Alternative Energy ETFs Shine as Oil Prices Rally Amid War).
VanEck Semiconductor ETF SMH
The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are expected to create solid opportunities in 2022. Moreover, the revolutionary 5G platform is expected to act as a major catalyst for semiconductor revenues in the mobile phone market. Per a Semiconductor Industry Association (SIA) report, the global semiconductor sales hit a record high of $555.9 billion in 2021, climbing 26.2% year over year. Semiconductor sales came in at $440.4 billion in 2020. With this, the metric crossed the $500-billion level for the first time.
VanEck Semiconductor ETF provides exposure to 24 securities by tracking the MVIS US Listed Semiconductor 25 Index. The product managed assets worth $8.13 billion and charges 35 bps of annual fees and expenses. SMH currently carries a Zacks ETF Rank #1, with a High-risk outlook (read: Nvidia ETFs to Tap on Upbeat Q4 Earnings).
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Click to get this free reportSPDR S&P Retail ETF (XRT): ETF Research ReportsVanEck Semiconductor ETF (SMH): ETF Research ReportsiShares Global Clean Energy ETF (ICLN): ETF Research ReportsInvesco KBW Bank ETF (KBWB): ETF Research ReportsiShares S&P 500 Value ETF (IVE): ETF Research ReportsTo read this article on Zacks.com click here.Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.