After experiencing significant volatility since the beginning of the year, the stock market stabilized briefly. However, the benchmark stock indexes have declined again over the past five days on concerns over further sanctions on Russia and the possibility of more extensive interest rate hikes by the Federal Reserve to tame soaring inflation.
Inflation has climbed to a multi-decade high. February data indicated a 7.9% rise, its highest since January 1982. Recession fears loom because inflation is expected to rise higher amid a tight labor market and a surge in crude oil prices. The Federal Reserve has indicated that it will implement aggressive interest rate hikes to stem the skyrocketing inflation. Also, the talks between Russia and Ukraine have failed to make any significant headway, and the United States has imposed a new round of sanctions on Russia. All this should drive further market volatility.
Amid the market uncertainty, ETFs with exposure to booming sectors or stocks could help generate steady returns in a less risky way. Therefore, we think it could be wise to add Energy Select Sector SPDR Fund (XLE), Vanguard Value Index Fund (VTV), SPDR S&P Metals and Mining ETF (XME), First Trust NASDAQ Cybersecurity ETF (CIBR), and iShares U.S. Aerospace & Defense ETF (ITA) to one’s portfolio.
Energy Select Sector SPDR Fund (XLE)
Launched by State Street Global Advisors, Inc., XLE is one of the most popular energy ETFs. It seeks to track the performance of the Energy Select Sector Index and the S&P 500 Index. In addition to the U.S. energy industry, the fund also holds shares of many of the largest oil producers.
With $36.99 billion in assets under management (AUM), XLE’s top holdings include Exxon Mobil Corporation (XOM), with a 22.18% weighting in the fund, followed by Chevron Corporation (CVX) at 21.45%, and EOG Resources, Inc. (EOG) at 4.79%. It currently has 23 holdings in total. Over the past year, the ETF’s fund flows have come in at $833.21 million. In addition, its 0.10% expense ratio compares favorably to the 0.46% category average.
XLE pays an annual dividend of $2.16, which yields 3.75% at the prevailing share price. Its four-year dividend yield stands at 5.45%. Its dividends have increased at a 6.75% CAGR over the past three years and 8.57% over the past five years. Over the past year, the fund has gained 56%.
XLE’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has an A for Trade and Buy & Hold grade. XLE is ranked #1 of 45 ETFs in the Energy Equities ETFs group. The group is rated B. Click here to see XLE ratings for Peer grade.
Vanguard Value Index Fund (VTV)
VTV is an exchange-traded fund launched and managed by The Vanguard Group, Inc. It invests in value stocks of large-cap companies. The fund seeks to track the performance of the CRSP U.S. Large-Cap Value Index, which tracks the investment return of large-capitalization value stocks.
Berkshire Hathaway Inc. (BRK-B) has a 3.15% weighting in the fund as its top holding, followed by UnitedHealth Group Incorporated (UNH) at 2.51% and Johnson & Johnson (JNJ) at 2.43%. VTV has $103.17 billion in AUM. Its fund flows have come in at $9.46 billion over the past three months. Its 0.04% expense ratio is lower than the 0.49% category average.
VTV pays a $3.04 dividend annually, yielding 2.10% at the current price. Its four-year average dividend yield stood at 2.51%. Its dividends have increased at a 4.99% CAGR over the past three years and 7.16% over the past five years. The fund has gained 11% over the past year and 7.2% over the past six months.
It is no surprise that VTV has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. In addition, it has an A for Trade and Buy & Hold grade.
The fund is ranked first among 86 ETFs in the Large Cap Value ETFs group. The group is rated A. In addition to the POWR Ratings grades we have stated above, one can see VTV’s rating for Peer here.
SPDR S&P Metals and Mining ETF (XME)
XME is an exchange-traded fund launched by State Street Global Advisors, Inc. and managed by SSGA Funds Management, Inc. It invests in the growth and value stocks of companies across diversified market capitalization ranges. The fund seeks to track the performance of the S&P Metals & Mining Select Industry Index by using a representative sampling technique.
The fund has $3.47 billion in AUM. Its top holdings include MP Materials Corp. (MP) with a 5.58% weighting, Cleveland-Cliffs Inc. (CLF) at 5.25%, and Steel Dynamics, Inc. (STLD) with 4.85%. It has 34 holdings in total. Its 0.35% expense ratio compares favorably to the 0.46% category average.
XME pays a $0.31 annual dividend, which yields 0.66% at the prevailing share price. Its average four-year dividend yield stands at 1.76%. In addition, its dividends have increased at a 2.1% CAGR over the past five years. Over the past year, the fund has gained 49% and it has generated 32% returns over the past three months.
XME’s POWR Ratings reflect solid prospects. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A for Trade and Buy & Hold grade and a B for Peer grade.
Click here to access all the XME ratings. XME is ranked #3 of 117 ETFs in the B-rated Commodity ETFs group.
First Trust NASDAQ Cybersecurity ETF (CIBR)
CIBR is an exchange-traded fund launched and managed by First Trust Advisors L.P. It invests in the stocks of companies operating in the information technology, software and services, technology hardware, and equipment sectors. The fund invests in growth and value stocks of companies across diversified market capitalization ranges. It seeks to track the performance of the NASDAQ CTA Cybersecurity Index.
CrowdStrike Holdings, Inc. (CRWD) has a 6.42% weighting in the fund as its top holding, followed by Palo Alto Networks, Inc. (PANW) at 5.96% and Cloudflare, Inc. (NET) at 5.90%. IYE has $6.49 billion in AUM. Its fund flows have come in at $1.98 billion over the past year.
CIBR pays a $0.06 dividend annually, yielding 0.11% at the current price. Its four-year average dividend yield stood at 0.50%. Its dividends have increased at a 91.6% CAGR over the past three years and 52.4% over the past five years. The fund has gained 18.6% over the past year and returned more than 6.9% over the past nine months.
CIBR’s strong fundamentals are reflected in its POWR ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. It has an A for Trade and Peer grade and a B for Buy & Hold grade.
Click here to get all the CIBR ratings. CIBR is ranked #7 of 119 ETFs in the B-rated Technology Equities ETFs group.
iShares U.S. Aerospace & Defense ETF (ITA)
ITA is an ETF launched by BlackRock, Inc. BlackRock Fund Advisors manages the fund. It invests in the stocks of companies that operate across the aerospace and defense sectors. It seeks to track the performance of the Dow Jones U.S. Select Aerospace & Defense Index.
With $3.71 billion in assets under management (AUM), ITA’s top holdings include Raytheon Technologies Corporation (RTX) with a 21.36% weighting in the fund, followed by Lockheed Martin Corporation (LMT) at 15.45%, and The Boeing Company (BA) at 7.55%. It currently has 37 holdings in total. Over the past three months, the ETF’s fund flows have come in at $996 million. In addition, its 0.42% expense ratio compares favorably to the 0.44% category average.
ITA pays an annual dividend of $0.89, which yields 0.83% at the prevailing share price. Its four-year dividend yield stands at 1.21%. Over the past year, the fund has gained 3.8% and returned more than 6.6% year-to-date.
It is no surprise that ITA has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. In addition, it has an A for Trade and Buy & Hold grade and a B for Peer grade.
ITA is ranked #3 of 36 ETFs in the Industrials Equities ETFs group. Click here to see all the ITA ratings.
XLE shares rose $0.40 (+0.52%) in premarket trading Thursday. Year-to-date, XLE has gained 39.43%, versus a -5.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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