Stock Analysis & Ideas

The 3 Best ETFs for a Late-Year Market Rally

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If you’re ready for a risk-on ending to a roller-coaster year in the markets, specific stocks are fine, but cost-conscious traders can consider an allocation in these three low-fee ETFs in hopes of great Q4 returns.

Can you hear the sleigh bells ringing? It looks like a “Santa Claus” rally might be starting early this year, just in time to buy holiday gifts for your friends and family. Your shopping list probably includes some individual stock picks, but exchange-traded funds or ETFs, such as XLE, QQQ, and ONLN mentioned below, can round out your year-end portfolio for exceptional growth and diversification.

After all, why obsess over specific businesses when you can buy a whole slew of them at once? Just be sure to check all the boxes: low fund management fees (typically expressed as an ETF’s annual expense ratio), adequate diversification within a market sector or across multiple sectors, and reasonable weightings among carefully vetted stock selections.

If all of those puzzle pieces are in place, you can ride a November and December broad-market rally to the top – or at least, to holiday-season peak profits, we can hope.

Energy Select Sector SPDR Fund (NYSEARCA: XLE)

State Street (NYSE: STT) is known far and wide for its selection of ETFs, and the Energy Select Sector SPDR Fund, or XLE, is a highly-liquid ETF representing the energy sector of the S&P 500 (SPX). It has a rock-bottom expense ratio of 0.10%, so you can effectively be an oil baron without paying hefty annual fees.

The underlying index’s dividend yield of 3.4% means you’d be holding a dividend-delivery machine with XLE. Even if it’s late in the year, it’s never too late to grab some dividends from a varied selection of oil, gas, and clean energy stocks.

Since oil and natural gas are desperately needed in Europe and elsewhere – and because it’s probably going to be a very cold winter – XLE could be a timely investment right now. For exposure to giants like Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX), and ConocoPhillips (NYSE: COP), feel free to give the XLE ETF a try.

Invesco QQQ Trust (NASDAQ: QQQ)

Brought to you by Invesco (NYSE: IVZ), the Invesco QQQ Trust, or QQQ, is a technology investor’s best friend. Modern society can’t exist without technology, and it pervades everything from our cars and computers to our phones and even entire buildings and cities.

With the QQQ fund, you’d have a holiday helping of famous NASDAQ-listed names like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN). Plus, you’ll get exposure to these tech titans with a reasonable annual expense ratio of 0.2%.

Just be aware that QQQ is heavily weighted in those three companies. In fact, Apple, Microsoft, and Amazon comprise 30.5% of QQQ’s holdings by weighting. Still, the fund is reasonably diversified with a total of 102 holdings, and these are all large companies – no tiny tech names here.

A number of technology stocks were beaten down this year, but they could recover quickly now that U.S. inflation appears to be easing. NASDAQ stocks have sometimes led year-end rallies in past years, so maybe 2022 could offer investors “tech-riffic” late-year returns with QQQ.

ProShares Online Retail ETF (NYSEARCA: ONLN)

If you’re planning to do some or even all of your holiday shopping online, you’re certainly not alone. E-commerce will be red-hot during this holiday season – and if you’re anticipating a Santa Claus rally, why not make the ProShares Online Retail ETF or ONLN a prime portfolio stocking-stuffer this year?

ProShares is known for its broad array of ETFs, including some unique and highly specific ones. ONLN is a great example of this, as it focuses on globally known e-commerce names such as Amazon, Alibaba (NYSE: BABA), and eBay (NASDAQ: EBAY).

Rest assured that ONLN isn’t bogged down by minuscule businesses, as each holding in the fund must “have a market capitalization of at least $500 million” as well as “a six-month daily average value traded of at least $1 million.” Moreover, ONLN’s expense ratio of 0.58% isn’t outrageous, so you can spend more money on holiday gift-giving instead of paying exorbitant fund-management fees.

Conclusion: ETFs are Tailor-Made for This Market Rally

Now, you have a handy selection of ETFs to quickly and conveniently add growth fuel and reliable diversification to your year-end portfolio. If the stock market continues to rally to the end of December, you’ll be glad that you invested in these ETFs, and you’ll be ready to start 2023 with some power-packed funds on your balance sheet.

Disclosure

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