2023 is a year of transition in the financial markets. The Federal Reserve rate increases of 2022 are starting to impact everyone’s daily lives. Mortgage and credit cards rates are higher and layoffs are beginning in corporate America. One positive is the risk free return in the Treasury or CD markets is just about 5% in some cases.
The Fed’s continued goal is to bring inflation back down to 2% target yearly rate is a heavy lift. In Congress, there is a battle brewing over the debt ceiling.
International tensions are high and the Chinese spy balloon being shot down is sure to have impacts on future relationships.
Corporate earnings are just being impacted by the historic rate increases by the Fed in 2022.
All these factors are cause for concern to the individual investor.
Below are three top investment ETFs (Exchange Traded Funds) to consider for the tough markets ahead in 2023.
You Need Consumer Staples
An ETF focused on consumer staples, is a good bet in 2023. Consumers in tough economic times will rely on the consumer staples. Consumers tend to move from name brands to generic brands when budgets are strained.
A consumer staple is a type of product that people use regularly and are considered essential for everyday life. They are typically non-discretionary items and people must purchase regardless of their income or economic conditions.
Examples of consumer staples include food, beverages, household cleaning supplies, personal care items, and over-the-counter medications. Consumer staples companies tend to be less affected by changes in the economy and can be a more stable investment opportunity.
One great ETF that is focused on consumer staples is the the Vanguard Consumer Staples ETF. The fund’s top holdings are: Procter & Gamble, Coca-Cola, PepsiCo, Walmart and Costco. These are great names and the fund is well diversified in different sectors such as agricultural products, food distributors and household products. The fund is currently yielding a 2.30% dividend and an average return of 9.67% since its inception in January 2004.
Utilities Are Hot!
In an economic downturn, everyone needs to keep the lights and heat on.
One way to insulate your portfolio and keep the returns hot is to invest in a utility focused ETF.
What are utility stocks?
Utility stocks are shares of companies that provide essential services such as electricity, natural gas, water, and waste management. Utilities are typically regulated monopolies, meaning that they have exclusive rights to provide these services within a certain geographic area. As a result, they are often able to earn stable and predictable profits, which can make them an attractive investment option for those seeking steady income streams.
Utility stocks are also often considered defensive stocks and tend to perform well during economic downturns because people still need access to essential services regardless of the state of the economy. Because utility companies are typically required to make substantial investments in infrastructure, they often offer attractive dividend yields to shareholders.
It is important to note that the performance of utility stocks can be affected by changes in government regulations and competition, as well as fluctuations in energy prices and interest rates. As with any investment, it’s important to carefully consider the risks and potential rewards before investing in utility stocks.
One great utility focused ETF is the Vanguard Utility ETF. The fund’s top holdings are: NextEra Energy, Duke Energy, Southern Co., Dominion Energy and American Electric Power Co. These are great names and the fund is well diversified in different sectors to include electric utilities, gas utilities and independent power producers and energy. The fund is currently yielding a 2.96% dividend and an average return of 9.58% since its inception in January 2004.
Materials Are Required
Material focused stocks and ETFs are a great option for returns in an inflationary environment.
Materials stocks refer to shares of companies involved in the production and distribution of raw materials and industrial commodities, such as metals, minerals, chemicals, and energy.
This sector can include a wide range of companies, from those that extract and produce raw materials, to those that refine and manufacture finished products using those materials.
Materials stocks can offer investors exposure to the performance of the global economy, as demand for raw materials is often closely tied to the health of industries such as construction, manufacturing, and technology. When the economy is growing, demand for materials generally increases, which can drive up the prices of raw materials and benefit materials companies.
Materials stocks can also be subject to significant price volatility. This happens, as the prices of raw materials can be affected by a wide range of factors, including supply and demand dynamics, geopolitical events, and natural disasters. Additionally, the materials sector can be cyclical, meaning that performance can be strongly influenced by changes in the economic cycle.
As with any investment, it’s important to carefully consider the risks and potential rewards before investing in materials stocks. It may also be helpful to seek the advice of a financial professional to determine whether this type of investment is appropriate for your individual investment goals and risk tolerance.
One great materials focused ETF is the Vanguard Materials ETF. The fund’s top holdings are: Linde, Air Products & Chemicals, Sherwin-Williams, Freeport-McMoRan, Corteva, and Newmont Goldcorp. These are great names and the fund is well diversified in different sectors to include aluminum, commodity chemicals, construction materials, and copper. The fund is currently yielding a 1.66% dividend and an average return of 9.31% since its inception in January 2004.
