- For investors who like betting with momentum, these are the best ETFs to buy in today’s market.
- Energy Select Sector SPDR Fund (XLE): Energy has been the best-performing sector this year.
- Utilities Select Sector SPDR Fund (XLU): Utilities have been the second-best performing group over the last three, six and 12 months.
- Consumer Staples Select Sector SPDR Fund (XLP): This defensive group has attracted the buyers lately.
It’s a great debate: Should you bet on what’s working or buy what’s under pressure? As investors, it depends on what timeframe we’re working with. Long-term investors may prefer stocks and exchange-traded funds (ETFs) that are under pressure. For others, the best ETFs to buy will be those that are already working.
We could debate until the end of the day about which ETFs are the best bargain today. However, for investors that like betting with momentum, these are the best ETFs to buy. Utilities, energy and basic materials have been some of the best bets in the market this year.
Aside from a big yield, utilities have continued to do well as investors seek a flight to safety. Even before 2022 got started, energy stocks were doing well and it’s a group that continues to run higher. Lastly, supply constraints and disruptions to the supply chain have kept materials running wild.
Can these groups continue to power higher? For now, the trend says yes. When the trend changes, so will our attitude. Thus far though, that hasn’t been the case. Let’s dive in.
|XLE||Energy Select Sector SPDR Fund||$76.40|
|XLU||Utilities Select Sector SPDR Fund||$72.30|
|XLP||Consumer Staples Select Sector SPDR Fund||$78.69|
Energy Select Sector SPDR Fund (XLE)
Over the last few days, energy stocks have taken a beating along with the rest of the market. It doesn’t help that the Federal Reserve is talking about a more aggressive rate-hiking schedule as it tries to fight inflation. For energy prices, inflation has been one of the key drivers in pushing prices higher.
That, in turn, has been fueling the run in energy stocks — no pun intended. As such, the Energy Select Sector SPDR ETF (NYSEARCA:XLE) has been on a tear. Over the last year, it’s up 51%. Likewise, the ETF is up 33% so far in 2022.
Energy has been the best-performing group over the last three, six and 12 months. As a result, the XLE has become one of the best ETFs to buy. Incidentally, the utility sector is the second-best-performing group in those measures as well.
One thing to know, Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) make up more than 43% of the XLE. Further, its top 10 holdings make up more than 75% of the fund.
Utilities Select Sector SPDR Fund (XLU)
As noted above, the utility sector has been one of great strength lately. That has made the Utilities Select Sector SPDR Fund (NYSEARCA:XLU) one of the best ETFs to buy over the last year.
Over the last six months, the XLU is up 9%. That’s a pretty solid return, particularly when the ETF also pays out a 2.75% dividend yield.
Utilities tend to be the “boring and safe” investment in the market. Known more for yield than capital appreciation, this sector tends to move slowly but is dependable. In a market environment like this, just keeping your head above water feels like a win. The Nasdaq opened the year by almost having its worst January on record. It has since seen a peak-to-trough decline of over 20%. The volatility index remains elevated, too.
So in that sense, not only is the XLU’s steadiness enviable, so is its performance. Shares are down just 3.7% from the high and for now, the ETF remains in an uptrend.
Consumer Staples Select Sector SPDR Fund (XLP)
Last but not least, we have the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP). I hate to sound like a pessimist, because at heart I’m a bull and I like to find uptrends even when there are many to choose from. It may not be a bullish observation for the overall market to see utilities leading the way. The same can be said for consumer staples.
That’s as the top stocks in the XLP ETF include Procter & Gamble (NYSE:PG), Costco (NASDAQ:COST), PepsiCo (NASDAQ:PEP), Coca-Cola (NYSE:KO), Walmart (NYSE:WMT) and others. Not exactly bull-market leaders, but for buyers looking for upside momentum, this is where it’s at right now.
The ETF is not up much for the year — certainly not up like utilities or energy. However, it is positive so far in 2022, which is a lot more than the S&P 500 or Nasdaq can say. Further, it continues to trend higher and is holding its key short-term moving averages.
While that may not matter to some investors, it’s important to identify the stocks with relative strength versus those that are underperforming the market.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.