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5 Top-Ranked ETFs Beating the Market at Midway Q1

After a dismal performance last year, Wall Street roared back, with all the major indices in green so far in the first quarter. Easing inflation, hopes of the Fed’s slower rate hike path and a reopening in China bolstered the risk appetite of investors. While there have been winners in many corners of the space, the technology sector has emerged as the biggest winner. A pause in interest rate increases is a positive sign for technology stocks.

We highlight five ETFs from different sectors that have easily crushed the market so far. These have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). The funds are, namely, Invesco NASDAQ Internet ETF PNQI, First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN, Invesco S&P SmallCap Consumer Discretionary ETF PSCD, Fidelity MSCI Communication Services Index ETF FCOM, and SPDR S&P Retail ETF XRT. These are likely to continue outperforming should the trends prevail.

The tech-heavy Nasdaq Composite Index, which was the most hit last year, has been outperforming, climbing 15.7%. This was followed by a 12% jump in the small-cap Russell 2000 Index. The S&P 500 and Dow Jones Index have gained 8.4% and 3%, respectively (read: 5 ETFs to Ride On as Nasdaq Clocks Best January in 20 Years).

Inflation is easing, increasing the prospects that the Fed could soon signal an end to its rate-hiking cycle. U.S. consumer prices unexpectedly fell for the first time in more than two-and-a-half years in December. A moderation in wage increases and a decline in U.S. services activity in December signal a slowdown in the U.S. economy and buoyed hopes of a less hawkish stance from the Fed. The latest job report showed that the United States added 223,000 jobs in December and the unemployment rate fell to 3.5%, matching a 50-decade low. However, wage growth lost momentum. All these factors have boosted investors’ risk appetite.

Additionally, the latest comment from Federal Reserve Chair Jerome Powell that inflation has started easing has also bolstered investors’ confidence. This has spurred bets that the central bank could continue slowing its interest rate hike campaign. At the latest meeting last week, the Fed lifted its benchmark interest rate by 0.25 percentage points to 4.5-4.75% and signaled that it could be closer to pausing its current rate-hiking campaign. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low.

We have profiled the above-mentioned ETFs in detail below:

Invesco NASDAQ Internet ETF (PNQI) – Up 26.7%

Invesco NASDAQ Internet ETF follows the Nasdaq CTA Internet Index, which measures the performance of companies engaged in Internet-related businesses listed on the New York Stock Exchange, NYSE American, Cboe Exchange or The Nasdaq Stock Market. The product holds 81 stocks in its basket, with double-digit exposure each in interactive media & services, software, and Internet & direct marketing retail.

Invesco NASDAQ Internet ETF has amassed $537.7 million in its asset base and charges 60 bps in fees per year. The fund trades in a light volume of 23,000 shares and has a Zacks ETF Rank #1.

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) – Up 21.4%

First Trust NASDAQ Clean Edge Green Energy Index Fund offers exposure to companies engaged in the manufacturing, development, distribution and installation of emerging clean-energy technologies, including solar photovoltaics, wind power, advanced batteries, fuel cells and electric vehicles. It tracks the Nasdaq Clean Edge Green Energy Index and holds 61 stocks in its basket.

First Trust NASDAQ Clean Edge Green Energy Index Fund manages assets worth $1.9 billion and charges 58 bps in fees per year. The product trades in an average daily volume of 190,000 shares and has a Zacks ETF Rank #2 (read: 5 Top-Ranked ETFs to Buy at Bargain Prices for 2023).

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD) – Up 21.1%

Invesco S&P SmallCap Consumer Discretionary ETF targets the small-cap segment of the broad consumer discretionary space by tracking the S&P SmallCap 600 Capped Consumer Discretionary Index. It holds 86 securities in its basket, with specialty retail taking the largest share at 36.9%, while household durables, and hotels, restaurants and leisure account for double-digit exposure each.

Invesco S&P SmallCap Consumer Discretionary ETF has attracted $27.1 million in AUM and charges 30 bps in annual fees. It trades in an average daily volume of about 1,000 shares and has a Zacks ETF Rank #2 with a High risk outlook.

Fidelity MSCI Communication Services Index ETF (FCOM) – Up 21%

Fidelity MSCI Communication Services Index ETF follows the MSCI USA IMI Communication Services 25/50 Index. It holds 113 stocks in its basket and charges 8 bps in annual fees.

Fidelity MSCI Communication Services Index ETF has amassed $546.9 million in its asset base and trades in an average daily volume of 127,000 shares. It has a Zacks ETF Rank #2.

SPDR S&P Retail ETF (XRT) — Up 18.8%

SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It holds well-diversified 94 stocks in its basket, with key holdings in apparel retail, automotive retail, specialty stores, and Internet & direct marketing retail (read: Online Retail ETFs Gaining Momentum: Time to Buy?).

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $397 million and an average trading volume of 4.5 million shares. It charges 35 bps in annual fees and has a Zacks ETF Rank #2.

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SPDR S&P Retail ETF (XRT): ETF Research Reports

Invesco NASDAQ Internet ETF (PNQI): ETF Research Reports

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First Trust NASDAQ Clean Edge Green Energy ETF (QCLN): ETF Research Reports

Fidelity MSCI Communication Services Index ETF (FCOM): ETF Research Reports

Invesco S&P SmallCap Consumer Discretionary ETF (PSCD): ETF Research Reports

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Zacks Investment Research