Energy

Fueled by rising commodity prices, energy was the S&P 500’s best-performing sector in 2021, returning a total of 53% vs the index’s 27% return. And that momentum has carried into 2022.

Year to date, the Energy Select Sector SPDR Fund (XLE) is up a whopping 55%, in stark contrast to the broad market’s double-digit decline.

XLE aims to track the performance of the S&P 500’s energy sector. If the positive momentum in energy prices continues, the ETF is a good bet to keep delivering market-topping returns.

XLE also provides a good starting point for further research if you are looking for individual picks. Its top holdings include oil giants like Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP).

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Financials

To tame spiking inflation, the Fed raised its benchmark interest rates by 50 basis points on May 4, marking the first half-point increase since 2000. Similar moves are expected to occur at the Fed’s upcoming meetings in June and July.

Many businesses fear rising interest rates. But for certain financials, like banks, higher rates are a good thing.

Banks lend money out at higher rates than they borrow at, pocketing the difference. As interest rates increase, this earnings spread widens.

Banking giants are also well-capitalized right now and have been busy returning money to shareholders.

Last year, Bank of America boosted its quarterly payout by 17% to 21 cents per share. Morgan Stanley doubled its quarterly dividend to $0.70 per share. And JPMorgan increased its quarterly rate by 11% to $1 per share.

Investors can also get exposure to financial stocks through ETFs like the Financial Select Sector SPDR Fund (XLF) and the Vanguard Financials ETF (VFH).

Healthcare

Healthcare serves as a classic example of a defensive sector thanks to its lack of correlation with the ups and downs of the economy.

At the same time, the sector offers plenty of long-term growth potential due to favorable demographic tailwinds — particularly an aging population — and plenty of innovation.

Average investors might find it difficult to pick out specific healthcare stocks. But healthcare ETFs can provide both a diversified and profitable way to gain exposure to the space.

Vanguard Health Care ETF (VHT) gives investors broad exposure to the healthcare sector.

To tap into specific segments within healthcare, investors can look into names like iShares Biotechnology ETF (IBB) and iShares U.S. Medical Devices ETF (IHI).

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Consumer Staples

Consumer staples are essential products such as food and drinks, household goods, and hygiene products.

We need these things regardless of how the economy is doing.

When inflation drives up input costs, consumer staple companies — particularly those with scale and distribution advantages — are able to pass those higher costs onto consumers.

Even if a recession hits the U.S. economy, we’ll probably still see Quaker Oats and Tropicana orange juice — made by PepsiCo (PEP) — on families’ breakfast tables. Meanwhile, Tide and Bounty — well-known brands from Procter & Gamble (PG) — will likely remain on shopping lists across the nation.

You can gain access to the group through ETFs like the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC).

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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