The Top 3 Best Performing ETFs of 2022

Energy Select Sector SPDR Fund (XLE)

State Street's flagship lineup of Select Sector ETFs has long since been popular with investors seeking sector tilts thanks to their excellent liquidity and low expense ratios. The most popular out of their 11 ETFs this year was XLE, which tracks the 23 energy stocks represented in the S&P 500.

Commodity prices, especially natural gas and oil soared throughout 2022 due to a rare combination of high worldwide inflation, supply chain constraints, and the war in Europe. As a result, commodity producers experienced stronger earnings, allowing them to initiate share buybacks and increase dividends.

XLE is not the only energy sector ETF out there, but it is one of the most popular with assets under management (AUM) of over $40 billion. With an expense ratio of 0.10% and low turnover thanks to its index structure, XLE is a favorite among investors bullish on large-cap U.S. energy stocks.

YTD returns as of December 28th, 2022: 61.45%

Simplify Interest Rate Hedge ETF (PFIX)

One of the hardest-hit assets this year was longer maturity fixed income. In particular, assets with extended durations like long-term Treasurys were hit particularly hard as interest rates rose at their most aggressive pace since the Volcker era in the late 1970s and early 1980s.

A highly innovative product that managed to capitalize on this trend in 2022 was PFIX. This complex ETF makes use of over-the-counter (OTC) interest rate derivatives called "swaptions" that target convex exposure to increases in interest rates and interest rate volatility.

Functionally, PFIX is intended to provide the same risk/return profile as a long-dated put option on the U.S. 20-year Treasury bond, but in a simple and more transparent one-ticker form. Launched in May 2021, the ETF has attracted over $394 million in AUM since.

YTD returns as of December 28th, 2022: 95.30%

iShares MSCI Turkey ETF (TUR)

What happened in Turkey this year is a great example of why the stock market's performance is not always symptomatic of the economy's condition, and vice-versa. Despite rampantly high inflation and a deterioration in living standards, the Turkish stock market was a strong outperformer in 2022.

With Turkish inflation reaching an 85% year-over-year increase in October, investors piled into the stock market as a last-ditch attempt to preserve the value of their savings. The buying frenzy helped propel the Turkish market to strong double-digit returns by year-end, offsetting some of the inflationary impact.

The most popular Turkey ETF for U.S. investors is TUR, which currently sports around $414 million in AUM. With just 54 holdings, mostly in the industrial, material, and financial sectors, TUR is a fairly concentrated ETF best suited for investors looking to implement a country tilt.

YTD returns as of December 28th, 2022: 99.30%

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.