ETF ideas for the second half of 2022

It may be summer, but investors are hardly experiencing summer doldrums. On July 28, the Commerce Department announced that GDP contracted for the second consecutive quarter. The day before, the US central bank hiked rates 0.75% attempting to combat inflation. Plus, its earnings season. Meanwhile, US stocks (as measured by the S&P 500) are down roughly 14% on a total return basis thus far in 2022, due in large part to rising interest rates, with growth stocks continuing to underperform value stocks year to date.

On the bright side, US markets are no longer in bear market territory (a decline of 20% or more from a recent peak) as they were back in June, and there are signs that inflationary pressures may be easing. That has led some investors to think stocks may be forming a bottom—although significant risks remain.

If you believe in the market's long-term prospects and you are interested in exploring exchange-traded funds (ETFs) to help build or adjust the equity portion of 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.

Here are 3 ETF screens spotlighted, plus the top results for each.

Value ETFs

Given the haircut that stocks have taken this year, they are generally trading at lower valuations relative to levels from last year. That has presented some investors with a renewed opportunity to look for value.

If you are a value-seeking investor, here are the top 10 ETFs with a market cap of at least $185.4 million that have a very low price-to-trailing earnings ratio (9.83 and lower) and very low price-to-cash flow ratio (7.19 and lower), sorted by market cap, as of July 28, 2022:

• iShares MSCI Value ETF ()
• iShares MSCI USA Value Factor ETF ()
• Flexshares Morningstar Global Upstream Natural Resources Index Fund ()
• Schwab Fundamental International Large Company Index ()
• Dimensional US Targeted Value ETF ()
• Pacer US Cash Cows 100 ETF ()
• iShares MSCI Brazil ETF ()
• Dimensional World Ex US Core Equity 2 ETF ()
• iShares International Select Dividend ETF ()
• Schwab Fundamental Emerging Markets Large Company Index ETF ()

You'll notice that some results of this screen hold assets in developed markets (like the US), while others hold assets in international and emerging markets. The composition of each of these funds can be quite different from one another, so you will want to look into each one to determine if it aligns with your objectives and risk tolerance. The next step after running a screen is to dig deeper.

Growth ETFs

In addition to value, it's possible to search for ETFs with a growth-oriented focus. While growth stocks have underperformed relative to value this year, that doesn't mean that trend will persist, and there's some evidence in big tech earnings reports, for example, that the negative momentum for growth stocks has slowed compared with earlier in the year.

If you are interested in exploring growth ETFs, the following screen looks for ETFs with US exposure that have a very high historical earnings growth (23.76% and above), very high cash flow growth (22.4% and above), and very high sales growth (13.9% and above). If you want to consider costs, you could also add a filter for low expense ratios, which measure how expensive a fund is. Here are the top 10 results of this screen, sorted by market cap, as of July 28, 2022:

• Vanguard Growth Index Fund ETF Shares ()
• iShares S&P 500 Growth ETF ()
• Schwab US Large-Cap Growth ETF ()
• SPDR Portfolio S&P 500 Growth ETF ()
• iShares Core S&P US Growth ETF ()
• Vanguard Mega Cap Growth Index Fund ETF Shares ()
• Vanguard S&P 500 Growth Index Fund ETF Shares ()
• Fidelity Stocks for Inflation ETF ()
• American Century US Quality Growth ()
• Janus Henderson Small/Mid Cap Growth Alpha ETF ()

In addition to looking into the components of a screen, you may also want to evaluate the quality of the list as a whole. Does it appear that the screen results match your search criteria? If it doesn't seem like the list is generating opportunities that match what you might be looking for, you may want to alter your screening criteria.

Analyst ratings

Oftentimes, investors aren't exactly sure what characteristics to look for. If so, you can consider using third-party ratings to search for ETFs that score well on a variety of metrics. Fidelity.com offers ETF ratings from Morningstar. Their ratings are calculated for funds with at least a 3-year history based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly excess performance, and places more emphasis on downward variations and rewards consistent performance. Here are the top 10 results of their 5-star ratings (the top 10% of funds in each category), sorted by market cap, as of July 28, 2022:

• Invesco QQQ Trust ()
• Vanguard Value Index Fund ETF Shares ()
• SPDR Gold Shares ()
• iShares Core S&P Small-Cap ETF ()
• iShares 1000 Growth ETF ()
• Vanguard Information Technology Fund ETF Shares ()
• Technology Select Sector SPDR Fund ()
• Health Care Select Sector SPDR Fund ()
• Schwab US Dividend Equity ETF ()
• Energy Select Sector SPDR Fund ()

There are 3 Fidelity funds that earned 5-star ratings as well: Fidelity MSCI Information Technology Index ETF (), Fidelity Nasdaq Composite Index ETF (), and Fidelity MSCI Health Care Index ETF ().

The holdings of several results of this screen are concentrated in the technology sector. With any ETF screen you run, you should be aware of the potential for concentration risk, which essentially means putting your eggs in a single basket if you are not diversified across the rest of your investments.

Due diligence

If you think one or more of the ETFs identified by a screen is worth considering, 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 potentially 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.