If you're like most S&P 500 investors this year — you're losing money. But it doesn't have to be that way.
Turns out you'll find plenty of asset classes, albeit many that've been ignored for years, doing just fine in 2022 so far. Some are more apparent, such as top energy stocks in the S&P 500 like Occidental Petroleum and Halliburton. But you'll also find winning bets in key commodities, high dividend stocks, strategic parts of the world and inflation-protected bonds. And using ETFs, you can invest in any of them just as easily as you'd buy an S&P 500 stock.
Unless you're loaded up with S&P 500 technology stocks, which continue to lead the market lower and are down roughly 13% this year going into March 17, you'll find opportunities. But you might need to widen your perspective, as the S&P 500 itself is down 8% this year.
"Alternative investments are critical in portfolio construction during the monetary policy tightening cycle, particularly when historically elevated stock market valuations are justified by historically low interest rates," said Carl Ludwigson, director of manager research at Bel Air Investment Advisors.
So what's working?
Commodities On Fire Outside The S&P 500
If you're like most investors, you totally underweight commodities. And that's costing you some big gains this year so far.
In terms of sheer price gains, you'll be hard pressed to top stuff you dig out of the ground. Leading the charge higher is nickel. It's a vital material used in industry, that's also a big export from Russia. Already, the iPath Series Bloomberg Nickel Subindex ETN rocketed more than 35% this year, says S&P Global Market Intelligence and MarketSmith. Nickel is the star commodity, but far from the only one.
Looming shortages in wheat, another big Russian export, are lighting up the Teucrium Wheat Fund. It's up more than 30% in price this year. And of course, the price of oil is making millionaires. The United States Oil Fund is up more than 25% this year.
Looking For Big Dividends In The S&P 500
Nothing stands out like a big dividend when income is scarce. And that's the case now.
The 3.2% yield of the WisdomTree U.S. High Dividend ETF is more than double the S&P 500's 1.3% yield. And that's something investors are willing to pay up for now. Shares of the ETF are up more than 3% this year. That might not sound like much, but keep in mind that's on top of the big dividend.
And it's not alone. The SPDR Portfolio S&P 500 High Dividend ETF is up 2.5% this year and yields 3.6%. The iShares Core High Dividend ETF is up 3.3% plus paying 3.4% annually.
Go Foreign: Just In The Right Places
Russian stocks are a disaster, and that could just be the start. But savvy investors are still finding winners in less war-torn parts of the world.
What's hot? Peru and its natural resource rich land. The iShares MSCI Peru ETF is up more than 20% this year. That's stellar if you consider diversified emerging markets indexes are mostly down roughly 8% this year.
Another hot investment for global investors is also in South America. Investors are skipping BRIC (Brazil, Russia, India and China), and just loading up on Brazil. Again, rich natural resources help push the iShares MSCI Brazil ETF up more than 17% this year.
Getting Tipsy For TIPS
Inflation is soaring and likely to rise more, as shown by soaring commodity prices. So investors are trying to protect themselves any way they can. And Treasury Inflation Protected Securities, or TIPS, are proving to be the hedge of choice.
Vanguard's version of a TIPS ETF, the Vanguard Short-Term Inflation-Protected Securities ETF, for instance, is up 0.2% this year. That's not much, but keep in mind it also yielded 4.7% over the past 12 months, Morningstar says. High inflation, if it continues, is a friend to TIPS.
Some investors, too, are pouring into the Simplify Interest Rate Hedge ETF. It doesn't yield anything, but rises when interest rates rise quickly. The Federal Reserve is seen hiking short-term rates againthis year. The ETF's value is up more than 24% this year. Yes, from a bond fund.
Go Big On Oil
Energy stocks are a tiny 4% in the S&P 500. So that means you'd have to go out of your way to overweight the sector. Top S&P 500 energy stocks are certainly working.
Shares of Occidental are up nearly 83% this year (and yield 0.9%). And Halliburton shares are up 49%. Owning oil commodity ETFs is another way to profit. But energy services firms, too, are dominating.
The top sector ETFs now all hail from energy. Headlining them all is the VanEck Vectors Oil Services ETF. It's up more than 39% just this year. Not far behind with a 37% gain is the iShares U.S. Oil Equipment & Services ETF.
To be sure, there's no guarantee these plays will continue. But many of the forces pushing them, including inflation, war in Europe and rising rates don't appear to be going anywhere soon. You'll at least know how some people are making money in a world like this. And it's not the S&P 500 right now.
How To Make Money This Year So Far
Select top ETFs in key asset classes/investment types
| ETF | Symbol | YTD Ch. | Yield |
|---|---|---|---|
| BONDS | |||
| Simplify Interest Rate Hedge | 24.9% | 0.0% | |
| Vanguard Short-Term Inflation-Protected Securities | 0.2 | 4.7 | |
| iShares 0-5 Year TIPS Bond | -0.3 | 4.6 | |
| COMMODITIES | |||
| iPath Series B Bloomberg Nickel Subindex Total Return ETN | 35.9 | 0.0 | |
| United States Brent Oil Fund | 29.3 | 0.0 | |
| ELEMENTS Energy Total Return | 32.2 | 0.0 | |
| Teucrium Wheat Fund | 33.2 | 0.0 | |
| United States Gasoline Fund | 27.1 | 0.0 | |
| United States Oil Fund | 25.6 | 0.0 | |
| HIGH DIVIDEND | |||
| WisdomTree U.S. High Dividend Fund | 3.6 | 3.2 | |
| SPDR Portfolio S&P 500 High Dividend | 2.5 | 3.6 | |
| iShares Core High Dividend | 3.3 | 3.4 | |
| FOREIGN | |||
| iShares MSCI Peru | 23.2 | 2.6 | |
| iShares MSCI Brazil | 17.3 | 7.9 | |
| Franklin FTSE Brazil | 17.0 | 7.7 | |
| iShares MSCI Saudi Arabia | 15.7 | 1.4 | |
| iShares Latin America 40 | 14.2 | 7.4 | |
| SECTOR | |||
| VanEck Vectors Oil Services ETF | 39.2 | 0.7 | |
| iShares U.S. Oil Equipment & Services ETF | 36.8 | 0.9 | |
| SPDR S&P 500 ETF Trust | -8.3% | 1.3 |
