Exchange-traded funds (ETFs) have been growing rapidly in recent years as they provide investors easy access to a large variety of sectors, industries, and strategies while looking to minimize many risks associated. In this week’s article we will discuss and look into a few ETFs that should be considered as we move into Q4.
SPLV – Invesco S&P 500 Low Volatility ETF
This fund from Invesco looks to offer investors exposure to 100 companies from the S&P 500 that recorded the lowest daily volatility over the past year with the lower volatility securities receiving more weight in the fund. SPLV follows a straightforward approach that has recently been outperforming the S&P 500 while lowering risk and increasing gains. The top five holdings of SPLV are, Johnson & Johnson (JNJ) 1.40%, Gilead Sciences, Inc. (GILD) 1.38%, PepsiCo, Inc. (PEP) 1.34%, Bristol-Myers Squibb Company (BMY) 1.25%, and McDonald’s Corporation (MCD) 1.24%.
Strategy – The SPLV is similar to the SPY but with lower risk. YTD the SPLV is down just 9% while the SPY is down nearly 18%. With the current market still fluctuating over inflation and interest rates, the SPLV gets you SP 500 exposure with lower risk.
XLE – Energy Select Sector SPDR Fund
This passively managed fund seeks to provide broad exposure to the energy sector of the equity market. Passive funds have been growing in popularity among all investors as they offer a low-cost option with transparency and flexibility. XLE follows the Energy Select Sector Index which follows companies related to oil, gas, fuels, and energy equipment. One reason why XLE has been able to shine is due to its low expense ratio of 0.10% which is one of the lowest in the space. XLE has grown almost 43% over the year and 70% in the last year making it a great option to gain exposure to the energy sector. The top five holdings of XLE are, Exxon Mobil (XOM) 22.55%, Chevron (CVX) 19.43%, Schlumberger NV (SLB) 5.21%, ConocoPhillips (COP) 4.45%, and Pioneer Natural Resources Company (PXD) 4.44%.
Strategy – The current administration has handcuffed oil production in the US and the war in Ukraine continues to create supply problems. This remains a good long-term play into 2024.
TBF – ProShares Short 20+ Yr Treasury
With interest rates on the rise, this fund from ProShares looks to offer inverse (-1x) exposure to daily plays on U.S. Treasury-bonds that have more than twenty years until maturity. The fund follows the ICE U.S. Treasury 20+ Year Bond Index which was designed to measure the performance of fixed rate securities under the aforementioned twenty-year maturity terms. TBF resets daily making it a great option for investors looking to position or hedge themselves against rising interest rates but it’s important to know that -1x leverage has a heightened impact as compounding is involved making the fund a short-term vehicle that plays differently every day. The top five holdings of TBF are the U.S dollar at 37.70% followed by four U.S Treasury bills for 11/10/2022 (17.33%), 11/17/2022 (17.31%), 12/01/2022 (17.29%), and 11/03/2022 (6.07%).
Strategy – Shorting long bonds has probably been one of the best strategies of the last 18 months. When Interest Rate hikes stop that’s when you want to get out of the TBF and into something like the TLT which works well with Interest Rate cuts which could be on the table in the third quarter of 2023.