6 Winning ETF Areas of May

The month of May is cursed from investors’ perspective. Per an adage, investors should “Sell in May and Go Away.” This May too has not been free from shockwaves thanks to rising rate worries due to a hawkish Fed. The S&P-based SPY was down 0.6%, the Dow Jones based DIA retreated 0.2% and the Nasdaq-based QQQ declined more than 3.6% in the past one month (as of May 31, 2022).

For the most part of the month, the indexes were downbeat. Wall Street finally ended its seven-week losing streak last week. The S&P 500 recorded its best week since November 2020. All indexes were up more than 6% each last week, helping the month of May to end on a decent mode.

Let’s take a look at the key ETF winning areas of the month.

Energy 

The energy sector has everything that is needed right now — decent valuation, higher dividends and an upbeat operating backdrop. WTI crude ETF United States Oil Fund LP (USO) was up more than 10% last month and 57.2% this year. The oil and gas rally this year has been driven by the Russia-Ukraine war (Russia is energy-rich) which resulted in supply chain issues and rising pent-up demand as global COVID cases are ebbing. The energy sector recorded a 240.6% earnings expansion in Q1, with 174.1% growth expected in Q2 – the highest in the S&P 500 Index.

US Gasoline UGA – Up 19.6%

Dynamic Energy Exploration & Production Invesco (PXE) – Up 19.3%

Shipping             

The ongoing supply chain issues went in favor of the shipping industry. The chaos pushed the demand for shipping higher. May recorded the highest monthly increase in long-term contracted ocean freight rates since Oslo-based Xeneta started tracking these shipments, as the cost of locking in container shipments jumped 30.1%, per a source called splash247.com. The monumental hike made the long-term rates up 150.6% year over year.

Sonicshares Global Shipping ETF BOAT – Up 13.8%

Dividend

The benchmark U.S. treasury yield hovered in the range of as high as 2.78% to 3.12% in May on faster Fed rate hikes. Against this backdrop, dividend ETFs acted as great safety bets. Be it a bull or a bear market, investors mostly love dividend-paying stocks. After all, who doesn’t like a steady stream of current income along with capital appreciation?

Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. After all, high-dividend ETFs provide investors avenues to make up for capital losses, if that happens at all.

Morningstar Dividend Leaders FDL – Up 6.1%  

Legg International Low Vola High Dividend ETF LVHI – Up 1.8%

Long/Short

Since most part of the month was down in the red, long/short or defensive ETFs gained precedence. Long/Short ETFs go a long way in restoring the value of one’s portfolio against this edgy backdrop. In mid-May, most analyst predictions went against the market strength (read: Will Defensive ETFs Gain Further as S&P 500 Lull Not Over Yet?).

Leatherback Long/Short Alternative Yield ETF LBAY – Up 6.0%

Commodities

Commodity investing is on a tear now. The Russia-Ukraine tensions and the resultant Western sanctions against Russia have heightened the chaos in the market and boosted commodities prices due to supply-chain woes. Notably, both Russia and Ukraine are commodity-rich.

Plus, commodity investing is seen as an inflation-protecting tool. Higher inflation is feared to weaken corporate earnings, which in turn, would hurt equity prices. In such a scenario, commodities may gain as an alternative investment.

S&P GSCI Commodity-Indexed iShares ETF GXG – Up 5.7%

Teucrium Wheat (WEAT) – Up 5.3%        

Commodities Select Strategy iShares ETF (COMT) – Up 4.9%        

DB Commodity Index Fund Invesco (DBC) – Up 4.6%

Inverse Equity

This is yet another winning area following the market crash. As Wall Street has been struggling for most part of this year so far, inverse equities recorded decent gains.

Active Bear ETF HDGE – Up 3.9%

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.