2 ETFs To Hold In 2022

Hey Traders,

After years of historic returns in the S&P 500 (Ticker: SPX) … +29% in 2019, +16% in 2020, and +27% in 2021 …

This is what we’ve seen so far in 2022 … during a time of year when markets have historically rallied:

So what should you do?

While I’m not suggesting you deviate from your long-term investment plans …

There are two indexes in particular that I like for the year ahead.

What are they?

DIAmond In The Rough

The first one you may have heard me talk about quite a bit over the last few months … especially since we saw the omicron/ARK Innovation ETF (Ticker: ARKK) meltdown.

I think as we see the Fed step up its battle to slow the ballooning rates of inflation, the Dow Jones Industrial Average (DJIA) will be the index that benefits the most.

Specifically, I like the SPDR Dow Jones Industrial Average ETF (Ticker: DIA) as a way of gaining exposure to the moves of the Dow.

The DIA returned just under 21% in 2021, but in the year ahead, I think it is poised to outperform.

Why the Dow/DIA?

Well, let’s go over a few basics about the Dow …

The Dow Jones Industrial Average was originally composed of 12 stocks, primarily in the industrial sector. 

Now, the DJIA is made up of 30 components, all “blue chip” names that are among the biggest companies in the U.S., and that typically see stable earnings. The great thing about the Dow is that, while it’s no longer solely composed of names in the industrial sector, its blue-chip components are relatively stable. For example, it’s biggest components are currently UnitedHealth Group (Ticker: UNH), Goldman Sachs Group (Ticker: GS) and Home Depot (Ticker: HD). 

Yes, it includes tech giants like Apple (Ticker: AAPL) and Microsoft (Ticker: MSFT), but it also contains plenty of names that are less vulnerable to inflation, like consumer goods heavyweights Procter & Gamble (Ticker: PG) and Johnson & Johnson (Ticker: JNJ).

The index is price weighted, so each component is weighted by its current share price, rather than market cap weighted, like the SPX, or equal weighted. This means that while the big tech names like AAPL and MSFT are included in the Dow, the index isn’t as heavily skewed to reflect their performance as, say, the Invesco QQQ Trust (Ticker: QQQ) or SPX.

Therefore, as we see growth stocks hit by rising interest rates, the Dow, and by extension, DIA, will be able to dodge some of the headwinds.

Remember, market breadth has been horrible for most of 2021. Yes, we saw a huge +27% gain in the S&P 500 … but just five stocks – Apple (Ticker: AAPL), Microsoft (Ticker: MSFT), NVIDIA (Ticker: NVDA), Tesla (Ticker: TSLA) and Alphabet (Ticker: GOOGL) accounted for about half of the indexes gain from April onwards …

Leaving the remaining 495 companies responsible for the other half …

A less tech-heavy index with good exposure to inflation-resistant names like energy, industrials, and consumer goods, is more likely to see outsized gains in the current economic climate, and in the face of rising interest rates, compared to tech-heavy indexes, which I think will struggle over the year ahead.

A RSP For Success

Maybe you’re not so keen to shun the tech heavyweights that have powered your portfolio to historic highs over the last year …

I get it.

So how about an ETF that lets you maintain your SPX exposure …

Without the massive FAANG tilt?

If that sounds like something you’d be into …

Check out the Invesco S&P 500 Equal Weight ETF (Ticker: RSP) – my other top ETF pick for the year ahead, which delivered a 29.4% return in 2021.

The RSP is an equal-weighted ETF that holds the same components as the SPX, but rather than weighting each component based on market cap, it weights its holdings equally to all of the SPX’s 500 components. 

This is a huge difference to the SPX itself. For example, AAPL, MSFT, and Amazon (Ticker: AMZN) are just three of 500 SPX components … but they account for more than 16% of its portfolio.

Meanwhile, names like Penn National Gaming (Ticker: PENN) and Alaska Air Group (Ticker: ALK) account for less than 0.02% each. Gap (Ticker: GPS) is weighted just 0.009%!

With RSP, you maintain exposure to all 500 companies (in total 505 components) in equal amounts, and the ETF is rebalanced quarterly.

So if you’re not quite ready to say “au revoir!” to your AMZN, NVDA, and TSLA exposure …

RSP might be exactly what you need.

And that’s why it makes my list of top two indexes to hold in 2022.

Like I said, I’m not telling you to rebalance your retirement fund, or shun growth stock exposure entirely (ahem, RSP!)

But if you’re looking for some medium-term buy-and-hold index exposure …

In my opinion, these two have the best chance of delivering steady gains in the year ahead.

Your Only Option,

Mark Sebastian

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