Top 3 contrarian ETFs as the Fed prepares to raise interest rates

on Feb 16, 2022
  • American inflation has risen while the unemployment rate has dropped.
  • This explains why the main indices have retreated this year.
  • We explain why you should look at Invesco QQQ, VNQ, and VHT.

The Federal Reserve is expected to start hiking interest rates in March – or earlier – as consumer inflation jumps. A hawkish Fed is expected to have major implications for top assets like stocks and cryptocurrencies. In this article, we will look at some of the best contrarian ETFs to buy as interest rates start rising.

Invesco QQQ

Invesco QQQ (QQQ) is one of the biggest ETFs in the world with more than $191 billion in total assets. The fund invests primarily in technology companies. Precisely, it tracks the Nasdaq 100 index. 

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Ideally, technology stocks tend to underperform in a period of high-interest rates. Fears of higher interest rates explain why the QQQ stock price has crashed by 12.8% from its highest level this year. It has even underperformed funds that track the S&P 500 and Dow Jones. 

The index underperforms in a period of high rates because of the overall rotation from growth to value. However, there is a possibility that QQQ will do well when the Fed starts hiking interest rates because investors have already priced in the situation. As such, there is a likelihood that the fund will do well as investors buy the fact.

Vanguard Real Estate ETF (VNQ)

The Vanguard Real Estate Fund (VNQ) is an ETF that tracks the biggest Real Estate Investment Trusts (REITs) in the United States. Some of the biggest companies in the fund are American Tower, Simon Property Group, and Equinix among others. 

Investing in real estate in a period of high-interest rates may sound as if it is counterintuitive. In fact, fears of higher interest rates have helped to push the VNQ stock price lower by about 12% from its highest level this year.

However, in reality, the value of real estate will likely keep rising as inflation holds steady. Also, there is a likelihood that investors have oversold the fund. As such, like QQQ, there is a possibility that it will do well when rate hikes start.

Vanguard Health Care ETF

The Vanguard Health Care ETF (VHT) is a leading fund that tracks the biggest healthcare stocks in the US. Some of the biggest holdings are companies like Pfizer, UnitedHealth, Johnson & Johnson, and Merck among others.

The VHT stock price has declined by about 9% from its highest level this year as investors worry about regulations and rate hikes. However, there is a possibility that the sector will do well in a period of higher rates. For one, as the number of Covid-19 cases rise, demand for some healthcare products will keep rising. Also, the fund is made up of some of the leading value stocks in the US.

Where to buy right now

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*Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.