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The U.S. stock market, which took a huge beating last year, bounced back strongly in the early weeks of 2023. Easing inflation, hopes of the Fed’s slower rate hike path and a reopening in China has been driving the stocks higher. While the rally has been broad-based, high beta and growth sectors, like technology, have been leading this year as investors flocked to the most beaten-down stocks of last year.

Inflation has been moderating and consumer confidence is rising, reflecting that the stock market will likely move higher. Many economic data points suggest that the economy is resilient and is backed by strong job growth, rising consumer spending and excess savings accumulated during the COVID-19 pandemic.

However, recession fears have been making investors jittery lately. This is because the yield curve has inverted (in which short rates are higher than long rates) sharply since the early 1980s, triggering fresh worries about economic troubles. Notably, inversions tend to precede a recession.

Meanwhile, commodity prices are declining from last year's peak, and the yields are falling as the Fed is on a lower rate hike path.

Given this, we have highlighted three ETFs, each from the best and worst-performing zones through midway Q1:

Best Zones

Cryptocurrency

The tech sector is outperforming at the start of 2023. Hopes of the Fed soon wrapping up its inflation-fighting campaign and cooling inflation have compelled investors to buy beaten-up technology stocks. In particular, bitcoin, which lost nearly 65% of its market value last year in its second-worst annual performance, soared to $23,000 last month for the first time in the last six months. Valkyrie Bitcoin Miners ETF (WGMI - Free Report) is the top performer, gaining 103.4%. It is an actively managed ETF that will invest 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 with an expense ratio of 0.75%. It has amassed $5 million in its asset base while trading in an average daily volume of 38,000 shares.

Meme

The turnaround in the cryptocurrency and technology market has bolstered the meme rally in 2023. Some meme stocks like MicroStrategy, Coinbase, AMC Entertainment and Peloton have been exhibiting solid rallies in the first few weeks of this year. Roundhill MEME ETF (MEME - Free Report) climbed 37.2%. It is the first ETF globally explicitly designed to track the performance of meme stocks. Roundhill MEME ETF follows the Solactive Roundhill Meme Stock Index, which consists of equal-weighted U.S.-listed equity securities that exhibit a combination of elevated social media activity and high short interest. Roundhill MEME ETF holds 25 stocks in its basket, with none making up for more than 5% share.

Roundhill MEME ETF has gathered $1 million in its AUM and charges 69 bps in annual fees. It trades in a volume of 5,000 shares a day on average.

Retail

The retail sector has been rising as online holiday sales hit a record high as heavy discounts persuaded shoppers to spend on everything from toys to electronics amid the rising inflation environment. ProShares Online Retail ETF (ONLN - Free Report) has risen 27.8%. It 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. ProShares Online Retail ETF 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 6.7% 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 $145 million in its asset base and charges 58 bps in annual fees. ONLN trades in an average daily volume of 98,000 shares.

Worst Zones

Natural Gas

Natural gas price has declined this year as warmer-than-normal winter weather reduced natural gas consumption to below average. Natural gas prices dropped below $3 per million British Thermal Units last month for the first time since May 2021. As such, the United States Natural Gas Fund (UNG - Free Report) tumbled 40.3% at midway Q1. It provides direct exposure to the price of natural gas on a daily basis through futures contracts. If the near-month contract is within two weeks of expiration, the benchmark will be the next month's contract to expire. The natural gas contract is natural gas delivered at the Henry Hub, LA.

The United States Natural Gas Fund has an AUM of $1 billion and trades in a volume of around 14.4 million shares per day. UNG has a 1.11% expense ratio.

Shipping

The dry bulk shipping market has been facing increased pressure in the early weeks of 2023, with rates declining. Normal seasonality and an earlier-than-usual Lunar New Year holiday along with the transient effect of China’s new COVID-19 policy are the culprits. Dry bulk — the world’s largest ocean trade by volume — is generally weak in the first quarter. Breakwave Dry Bulk Shipping ETF (BDRY - Free Report) has declined 29%. It is the only freight futures ETF exclusively focused on the dry bulk shipping market through a portfolio of near-dated freight futures contracts on dry bulk indices. Breakwave Dry Bulk Shipping ETF holds freight futures with a weighted average of approximately three months to expiration, using a mix of one-to-six-month freight futures based on the prevailing calendar schedule.

Breakwave Dry Bulk Shipping ETF has accumulated about $48.1 million in AUM and trades in a good volume of about 248,000 shares per day on average. It charges a higher annual fee of 3.50%.

Volatility

Although stock market volatility has increased lately, it was on a back seat for January. As such, volatility products have been the biggest losers. In particular, iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) has plunged 21.6%. It focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. The note gives investors exposure to a daily rolling long position in the first and second months of VIX futures contracts.

iPath Series B S&P 500 VIX Short-Term Futures ETN is popular and liquid with AUM of $328.3 million and an average daily volume of 7.7 million shares. The note charges 89 bps in annual fees.

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