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5 Sector ETFs That Beat the Market in January

Wall Street staged a strong comeback at the start of the year, with all the major indices in green for the first month of 2023. Easing inflation, hopes of the Fed’s slower rate hike path and a reopening in China bolstered the risk appetite of investors.

While most of the segments have been rallying this year, Valkyrie Bitcoin Miners ETF WGMI, ARK Next Generation Internet ETF ARKW, VanEck Vectors Rare Earth/Strategic Metals ETF REMX, ProShares Online Retail ETF ONLN and Roundhill MEME ETF MEME from different corners of the market are leading the way higher.

The S&P 500 is on track for its best January since 2019, when it gained nearly 8%. The index has added 4.6% in the first month of 2023, following a 19% loss last year. Markets expect that the Fed could soon signal an end to its rate hiking cycle, propelling high growth and high beta sectors like technology and communication higher (read: S&P 500 ETFs in Focus as SPY Turns 30).

Inflation is easing and consumer confidence is rising, implying that the stock market will likely move higher. U.S. consumer prices unexpectedly fell for the first time in more than two-and-a-half years in December. Americans are regaining confidence in the U.S. economy, with the sentiment bouncing back in December and January and reversing consecutive declines in October and November. The U.S. Michigan consumer sentiment survey hit a nine-month high of 64.6 in January, up from 59.7 in December.

A moderation in wage increases and a decline in U.S. services activity in December signaled 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.

ETFs in Focus

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

Valkyrie Bitcoin Miners ETF (WGMI) – Up 91.7%

Bitcoin, the largest digital currency by market value, surged 40% after its second-worst annual performance in 2022. The rally came on bets that the Fed will soon wrap up its inflation-fighting campaign as inflation is cooling. Valkyrie Bitcoin Miners ETF is the top-performing ETF of January. It is an actively managed ETF providing exposure to the bitcoin mining industry WGMI invests at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenues or profits from bitcoin mining operations and/or from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining.

Valkyrie Bitcoin Miners ETF holds 24 stocks in its basket and charges 75 bps in annual fees. It has amassed $4 million in its asset base while trading in an average daily volume of 13,000 shares (read: Bitcoin ETF Wins in January: 5 Best Stocks).

ARK Next Generation Internet ETF (ARKW) – Up 24.4%

Internet stocks, which were heavily beaten-down last year on rising rates concern, have shown impressive performance on Fed slower-than-expected rate hike expectations. ARK Next Generation Internet ETF is an actively managed fund focusing on companies expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund holds 36 stocks in its basket.

ARK Next Generation Internet ETF has amassed $1.2 billion in its asset base and charges 88 bps in annual fees. It trades in an average daily volume of 499,000 shares.

VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) – Up 24.3%

Rare earth metal stocks get a boost form the recently passed U.S. defense spending bill. The bill authorizes $1 billion for the National Defense Stockpile to acquire strategic minerals and rare earth elements that have critical use in military and other applications. The United States is enhancing its focus on critical minerals and materials to lower its dependence on China amid intensifying tensions between the two countries. VanEck Vectors Rare Earth/Strategic Metals ETF offers exposure to companies engaged in producing, refining and recycling rare earth and strategic metals and minerals. It follows the MVIS Global Rare Earth/Strategic Metals Index, holding 25 stocks in its basket.

VanEck Vectors Rare Earth/Strategic Metals ETF has AUM of $771.9 million and an average daily volume of 90,000 shares. From a country look, Australian firms dominate the portfolio with a 39.5% share, closely followed by China (31.4%) and the United States (13.9%). The product charges 53 bps in annual fees.

ProShares Online Retail ETF (ONLN) – Up 24.2%

The retail sector has been rising as online holiday sales hit a record high buoyed by heavy discounts, which persuaded shoppers to spend on everything from toys to electronics amid the rising inflation environment. ProShares Online Retail ETF offers exposure to companies that principally sell online or through other non-store channels and then zeros in on the companies that reshape the retail space. It tracks the ProShares Online Retail Index, holding 25 stocks in its basket. ONLN is highly concentrated on the top two firms, while the other firms hold no more than 7.6% of the assets. American firms make up 65.8% of the portfolio, while Chinese firms account for 25% share.

ProShares Online Retail ETF has accumulated $154.5 million in its asset base and charges 58 bps in annual fees. ONLN trades in an average daily volume of 75,000 shares (read: 4 Sectors & Their ETFs Returning Double-Digits to Start 2023).

Roundhill MEME ETF (MEME) – Up 23.4%

The sheer return of risk-on sentiments this year has boosted meme stocks once again. Some stocks like MicroStrategy, Coinbase, AMC Entertainment, and Peloton have been exhibiting solid rallies in the first few weeks of this year, The Street article noted. The turnaround in the cryptocurrency and technology market has mainly bolstered the meme rally in 2023. Roundhill MEME ETF is the first ETF globally explicitly designed to track the performance of meme stocks. It follows the Solactive Roundhill Meme Stock Index and holds 25 stocks in its basket, with none making up for more than 5.4% share.

Roundhill MEME ETF has gathered $0.9 million in its AUM and charges 69 bps in annual fees. It trades in volume of 2,000 shares a day on average.

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ARK Next Generation Internet ETF (ARKW): ETF Research Reports

VanEck Rare Earth/Strategic Me (REMX): ETF Research Reports

ProShares Online Retail ETF (ONLN): ETF Research Reports

Roundhill MEME ETF (MEME): ETF Research Reports

Valkyrie Bitcoin Miners ETF (WGMI): ETF Research Reports

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Zacks Investment Research