Five Investment Ideas for 2022

Bill Parrott |

The S&P 500 is up 21% for the year, but it's limping to the close. The Omicron variant and rising inflation have forced some investors to the sidelines. US stocks, especially large-cap growth stocks, have been stellar investments for the past few years, but will this trend continue? Below are my five best sector bets for 2022.

Small-Cap Value

Small-cap value stocks have underperformed large-cap growth stocks on a 1-, 3-, 5-, and 10-year basis. Large-cap growth stocks have been up more than 600% for the past decade, while small-cap value stocks returned 176%. The sector is currently trading at a discount to large-cap companies, so hopefully, the tide will turn soon.  Vanguard's Small-Cap Value ETF (VBR) is an excellent way to invest in this category.

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International Companies

International stocks have lagged US companies for the past decade by a wide margin. The S&P 500 is up 279%, while the EAFE Index is up a paltry 59%. The return differential has created a wide discount for international companies. A popular investment fund for this category is the iShares MSCE EAFE ETF (EFA).

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Emerging Markets

Emerging market stocks have barely budged relative to US companies, especially if they have significant exposure to Chinese companies. If you anticipate inflation to continue, emerging markets could perform well as most of these counties have substantial natural resources. The iShares MSCI Emerging Markets ex-China ETF (EMXC) is an excellent way to invest in this sector.

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Home Builders

Homebuilders performed well in 2021, but the trend should continue as millennials and first-time homebuyers flood the market. In addition, a shortage of housing and low rates will continue to fuel the boom. The iShares US Home Construction ETF (ITB) and SPDR® S&P Homebuilders ETF (XHB) are two good investment options for this sector.


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Industrial and Material Stocks

Despite Senator Joe Manchin hammering the Build Back Better Bill, our country needs a more robust backbone, including Wi-Fi, roads, rails, and airports. I don't know what the eventual bill will look like, but our infrastructure needs fixing. A few funds in this sector include the Vanguard Industrials ETF (VIS), Industrial Select Sector SPDR® ETF (XLI), and iShares US Industrials ETF (IYJ).