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5 ETF Zones Outperforming to Start 2022

Wall Street has seen a rocky start to 2022, with the major bourses registering losses for the second consecutive week. The spread of the Omicron variant of COVID-19 as well as rising yields have made investors jittery. This has resulted in a sharp sell-off in high-growth sectors like technology that has taken the sheen away from the broad stock market.

Against such a backdrop, a few corners of the stock market are performing well. VanEck Vectors Oil Services ETF OIH, First Trust Nasdaq Bank ETF FTXO, iShares North American Natural Resources ETF IGE, ProShares Equities for Rising Rates ETF EQRR and First Trust NASDAQ Global Auto ETF CARZ are outperforming to start 2022.

Omicron cases are also surging in the United States, with more than a million new cases in a single day and hospitalizations hitting new highs. Menawhile, the 10-year Treasury yield hit a two-year high on bets that the Federal Reserve could raise interest rates as soon as in March (read: 5 Top-Ranked ETFs to Add to Your Portfolio for 2022).

However, higher yields indicate investors’ optimism in the economy. A still-improving economy backed by job growth and higher consumer confidence will likely bolster risk-on trade. Increased U.S. consumer confidence suggests that the economy would continue to expand in 2022. Additionally, President Biden’s administration took steps to eliminate supply-chain bottlenecks, indicating that higher inflation will not last very long. Further, the wider spread of vaccinations, new vaccines as well as solid corporate earnings bode well for the economy and the stock market.

ETFs in Focus

We have profiled the above-mentioned ETFs in detail below:

Energy

The energy sector remains the outperformer to start the New Year as oil prices are rising further on supply disruptions and unprecedent demand. VanEck Vectors Oil Services ETF (OIH) tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. It holds 25 stocks in its basket with double-digit allocation each in the top two firms (read: 5 Energy ETFs Making the Most of Oil Price Surge).

With AUM of $2.6 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees and trades in an avaerge daily volume of 831,000 shares. The product has surged 23.5% in the first two weeks of 2022 and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Banks

A rising rate environment is highly beneficial for the financial sector, especially banks. As banks seek to borrow money at short-term rates and lend at long-term rates, the rise in interest rates will earn more on lending and pay less on deposits, leading to a wider spread. This will expand net margins and increase banks’ profits. First Trust Nasdaq Bank ETF (FTXO) follows the Nasdaq US Smart Banks Index, which measures the performance of U.S. companies within the banking industry. It holds 28 securities in its basket and charges 60 bps in annual fees.

First Trust Nasdaq Bank ETF has AUM of $337.6 million and trades in volume of 111,000 per share on average. The product has risen 12.7% in the first two weeks of 2022 and has a Zacks ETF Rank #2 (Buy).

Natural Resources

With the rise in prices for almost everything, metals and mining companies are also benefiting along with the enrgy. iShares North American Natural Resources ETF (IGE) offers exposure to oil and gas, mining, and forestry companies by tracking the S&P North American Natural Resources Sector Index. It holds 113 stocks in its basket with none holding more than 10.3% of assets. iShares North American Natural Resources ETF has key holdings in integrated oil & gas, oil & gas exploration & production, and oil & gas storage & transportation that accounts for double-digit exposure each.

iShares North American Natural Resources ETF has amassed $516 million in AUM and trades in an average daily volume of 187,000 shares. The fund charges 43 bps in annual fees and has gained 10.5% so far this year.

Rising Rates

Rising yields have raised the appeal for ProShares Equities for Rising Rates ETF (EQRR) as it provides relative outperformance during periods of rising rates, as compared to traditional U.S. large-cap indexes, such as the S&P 500. It tracks the Nasdaq U.S. Large Cap Equities for Rising Rates Index. ProShares Equities for Rising Rates ETF holds 50 stocks in its basket with double-digit allocation each in financials, energy, basic materials and industrials.

ProShares Equities for Rising Rates ETF has accumulated $11.3 million in its asset abse while charges 35 bps in fees. It has gained 8.3% in the first two weeks of 2022 (read: 5 ETF Areas Up At Least 6% Last Week Amid Bloodbath).

Auto

With continued acceleration in digitization, automakers have been propelling their online services, thereby providing a huge boost to the industry.  First Trust NASDAQ Global Auto ETF (CARZ) offers a pure-play global exposure to 33 auto stocks by tracking the Nasdaq Global Auto Index. It has a moderate concentration across components as each of these make up for no more than 10% share.

First Trust NASDAQ Global Auto ETF has $83.1 million in AUM and trades in a small average daily trading volume of about 19,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 with a High risk outlook.


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First Trust NASDAQ Global Auto ETF (CARZ): ETF Research Reports
 
VanEck Oil Services ETF (OIH): ETF Research Reports
 
First Trust NASDAQ Bank ETF (FTXO): ETF Research Reports
 
iShares North American Natural Resources ETF (IGE): ETF Research Reports
 
ProShares Equities for Rising Rates ETF (EQRR): ETF Research Reports
 
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