ETF ideas for 2022

Here are some opportunities to consider in large-cap, sector, and ESG ETFs.

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2022 has gotten off to tough start, with US and global stocks (as measured by the S&P 500 and the MSCI World Index) reaching bear market territory, as of late February 2022. And new risks, including the unfolding Ukraine-Russia conflict, are threatening to exacerbate the selling pressure. 

With that said, there are reasons to be optimistic, and the recent market weakness may present a buying opportunity for longer-term investors. If geopolitical tensions subside, that could remove some of the short-term selling pressure. Additionally, Omicron-related infections (down roughly 90% from pandemic highs set a month ago in mid-January), hospitalizations, and mortalities are trending in a healthy direction, allowing the economic reopening to continue. That has underpinned resilient earnings growth, and global growth remains relatively strong. For example, while US GDP growth forecasts have been downgraded recently, it is still projected to increase a relatively robust 5.6% in the first quarter of 2022 and 4.4% in the second quarter, according to FactSet consensus estimates.

If you believe in the market's long-term prospects and you are interested in exploring exchange-traded funds (ETFs) to help build or manage a diversified portfolio, consider using Fidelity's ETF Screener to quickly sort through a lot of data. You can search for ETFs using a variety of investment themes as well as characteristics like the fund's objectives, fundamentals, technicals, performance, volatility, trading characteristics, tax considerations, and analyst ratings.

Below, we feature 3 ETF screens, plus the top results for each.

Large-cap ETFs

Fidelity's latest quarterly market update notes that, while the global economy is past the peak rate of growth in the current phase of the business cycle, there are a variety of reasons to think investors can expect positive growth this year—a caveat being that there is an increased risk of volatility, particularly if the military conflict in Ukraine escalates.

If you have a positive view on large-cap stocks, which tend to historically be less volatile than mid-caps and small-caps, you could consider the large-cap ETF screen on Fidelity.com. Here are the top 10 results sorted by net assets, as of February 24, 2022:

  • SPDR S&P 500 ETF Trust (SPY)
  • iShares Core S&P 500 ETF (IVV)
  • Vanguard S&P 500 ETF (VOO)
  • Schwab US Large-Cap ETF (SCHX)
  • iShares Russell 1000 ETF (IWB)
  • Vanguard Large-Cap Index Fund ETF Shares (VV)
  • SPDR Portfolio S&P 500 ETF (SPLG)
  • iShares S&P 100 ETF (OEF)
  • SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
  • Vanguard Mega Cap Index Fund ETF Shares (MGC)

Screen results can serve as a jumping off point to do further research. An important step you can take after running a screen is to evaluate the quality of the list that is generated. Does it appear that the screen results match your search criteria? Do they align with your objectives?

Sector ETFs

If you think the negative start to the year might indicate defensive sectors could outperform cyclical sectors, you could look at ETFs in the health care, consumer staples, and utilities sectors—the 3 primary defensive sectors. Here are the 5 largest ETFs in the health care, consumer staples, and utilities sectors by net assets, as of February 24, 2022:

  • Health Care Select Sector SPDR Fund (XLV)
  • Vanguard Health Care Index ETF Shares (VHT)
  • iShares Biotechnology ETF (IBB)
  • iShares US Medical Devices ETF (IHI)
  • SPDR S&P Biotech ETF (XBI)
  • Consumer Staples Select Sector SPDR Fund (XLP)
  • Vanguard Consumer Staples Index Fund ETF Shares (VDC)
  • Vaneck Agribusiness ETF (MOO)
  • iShares Global Consumer Staples ETF (KXI)
  • Fidelity MSCI Consumer Staples Index ETF (FSTA)
  • Utilities Select Sector SPD Fund (XLU)
  • Vanguard Utilities Index Fund ETF Shares (VPU)
  • iShares Global Clean Energy ETF (ICLN)
  • Invesco Solar ETF (TAN)
  • Fidelity MSCI Utilities Index ETF (FUTY)

With a screen like this, you should be aware of the potential for concentration risk. Concentration risk, colloquially speaking, can fall into the category of putting your eggs in a single basket—if you are not diversified across the rest of your investments.

ESG trends

Among the investing trends that have becoming increasingly popular in recent years is sustainable investing as defined by ESG factors—environmental, social, and governance. Generally, ESG factors involve the impact that a company's operations and products have on the environment; the relationship a company has with customers, employees, suppliers, and communities they operate in; and a company's governance policies.

If you are interested in exploring ESG-focused ETFs, here are the 10 largest ESG ETFs by net assets, as of February 24, 2022:

  • iShares ESG Aware MSCI USA ETF (ESGU)
  • iShares ESG Aware MSCI EAFE ETF (ESGD)
  • iShares ESG Aware MSCI EM ETF (ESGE)
  • Vanguard ESG US Stock ETF (ESGV)
  • iShares Global Clean Energy ETF (ICLN)
  • iShares MSCI USA ESG Select ETF (SUSA)
  • iShares MSCI KLD 400 Social ETF (DSI)
  • iShares ESG MSCI USA Leaders ETF (SUSL)
  • XTrackers MSCI USA ESG Leaders Equity ETF (USSG)
  • Vanguard ESG International Stock ETF (VSGX)

It's helpful to understand the holdings within an ETF, and that is certainly the case for ESG-focused funds. Indeed, the composition of each of these funds can be quite different from one another, and so you will want to dig deeper into each one to determine if it aligns with your objectives and risk tolerance. For example, some results of this screen hold assets in developed markets (like the US), while others hold assets in emerging markets. You would want to do your due diligence to understand the different characteristics and risks of these ETFs. Another factor to consider is that most of the results of this screen are ETFs with relatively limited track records (i.e., several years). An ETF with a relatively limited track record, compared with established funds with longer tenures, may be more difficult to evaluate.

Due diligence

If you think one or more of the ETFs identified by a screen is worth considering to help manage the risk in your portfolio or achieve your objectives, your next step should be to research it further. And always remember to evaluate a fund's costs, including the following:

  • Expense ratio: Look for low expense ratios to help reduce your overall costs.
  • Bid-ask spread: Look for small bid-ask spreads to help reduce costs of investing.
  • Tracking error: Look for a low tracking error to find ETFs that indicate a better job of replicating their benchmark indexes.

If you find ETFs with similar objectives, you could compare their expense ratios, bid-ask spreads, and/or tracking error to find the better deal. You can filter for all of these factors using the ETF Screener.

Knowing the individual components of an ETF can also give you a better sense of what you are buying or selling. You can find an ETF's components on its ETF snapshot page on Fidelity.com, under Portfolio Composition. On that page, you can find the ETF's style (value, growth, or blend) and size (large, mid, or small), as well as ratings and key statistics.

Finally, you should fully understand the risks involved in any investment strategy. Any investing opportunity should be considered within the context of a well-diversified investment strategy that conforms to your specific time horizon, objectives, and risk parameters.

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