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Wall Street has been on a tough ride this year, with all three major indices in negative territory. Russia’s invasion of Ukraine, aggressive rate hikes by the Fed and global growth concerns have roiled the stock market badly. Additionally, a resurgence of COVID-19 cases in China has slowed down economic activities across the country.

While most of the market was in deep red, a few have performed well. Simplify Interest Rate Hedge ETF (PFIX - Free Report), Energy Select Sector SPDR (XLE - Free Report), SPDR S&P North American Natural Resources ETF (NANR - Free Report), KFA Mount Lucas Index Strategy ETF (KMLM - Free Report), and Leatherback Long/Short Alternative Yield ETF (LBAY - Free Report) from various corners of the stock market gained more than 20% so far this year.

These funds have been this year’s star performers and could also be winners for the next year if the current trends continue.

Current Market Trends

The Federal Reserve has been on an aggressive tightening policy to fight the skyrocketing inflation. The central bank has raised its interest rate by 375 bps this year in the fastest hikes since the 1980s. The aggressive approach has stoked worries of a recession, with top executives of major U.S. financial institutions, including JPMorgan, BlackRock and Citi, forecasting a likely economic downturn in 2023.

The latest comments from Federal Reserve Chairman Jerome Powell signaled that smaller interest rate increases are likely and could start in December amid recent signs of ebbing inflation. Traders expect the Fed to increase rates by 50 bps to 4.25-4.50% in December, with the rates peaking in June 2023. However, the bouts of the latest data, hotter-than-expected Institute for Supply Management services and stronger jobs have put a damper on hopes that the Fed would ease the pace of its interest rate hikes.

The economy added 263,000 jobs in November, marking another strong month of job growth. The unemployment rate remained at 3.7%, close to a 50-year low, while average hourly earnings jumped 0.6% from the prior month and 5.1% from the year-ago month. Higher wages will add to higher inflation. Meanwhile, business activity jumped the most since March 2021 in November, suggesting that the largest part of the economy remains resilient. ISM’s gauge of services rose to 56.5 last month from 54.4 in October.

Simplify Interest Rate Hedge ETF (PFIX) – Up 69.9%

Simplify Interest Rate Hedge ETF seeks to provide a hedge against a sharp increase in long-term interest rates and benefit from market stress when fixed-income volatility increases while providing the potential for income. It buys put options on longer-term Treasury bonds to offer “the most liquid and the most cost-efficient way of getting interest rate protection.” Simplify Interest Rate Hedge ETF is the first ETF providing a simple, direct and transparent interest rate hedge.

PFIX has accumulated $340.5 million in its asset base and trades in an average daily volume of 386,000 shares. It charges 50 bps in annual fees.

Energy Select Sector SPDR (XLE) – Up 57.6%

Energy Select Sector SPDR is the largest and the most popular ETF in the energy space, with AUM of $39.6 billion and an average daily volume of 24.1 million shares. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 23 securities in its basket, with a heavy concentration on the top two firms.

Energy Select Sector SPDR charges 10 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a High-risk outlook.

SPDR S&P North American Natural Resources ETF (NANR) – Up 26.7%

SPDR S&P North American Natural Resources ETF provides exposure to U.S. and Canadian publicly traded large and mid-cap companies within the materials energy and consumer staples industries with 52%, 43% and 5% share, respectively. It follows the S&P BMI North American Natural Resources Index, holding 34 stocks in its basket.

SPDR S&P North American Natural Resources ETF has amassed $583.9 million and charges 35 bps in annual fees. It trades in a moderate volume of 56,000 shares a day on average.

KFA Mount Lucas Index Strategy ETF (KMLM) – Up 25.5%

KFA Mount Lucas Index Strategy ETF is benchmarked to the KFA MLM Index, which consists of 22 liquid futures contracts traded on U.S. and foreign exchanges. The Index includes futures contracts on 11 commodities, six currencies and five global bond markets. These three baskets are weighted by their relative historical volatility, and within each basket, the constituent markets are equal-dollar weighted.

KFA Mount Lucas Index Strategy ETF has amassed $281.7 million in its asset base and trades in an average daily volume of 255,000 shares. It charges 92 bps in annual fees.

Leatherback Long/Short Alternative Yield ETF (LBAY) – Up 21.7%

Leatherback Long/Short Alternative Yield ETF is actively managed that seeks income generation and capital appreciation through shareholder-yielding equities and income-producing securities. Leatherback establishes long positions in securities it believes will provide sustainable shareholder yield and takes short positions in securities it expects will decline in price.

Leatherback Long/Short Alternative Yield ETF has accumulated $62.7 million in its asset base and trades in an average daily volume of 19,000 shares. It charges 1.43% in annual fees.

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