SPDR offers a wide range of UCITS-compliance sector ETFs covering World, US and Europe exposures. With more than $260 billion in sector ETF AUM, SPDR is a global leader in sector investing.
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For investors seeking to capitalise on return dispersion by implementing a sector rotation strategy, price momentum can be an indicator of emerging opportunities and risks. Powered by RRG® Research, the Sector ETF Momentum Map is a powerful tool that lets you see in real time how sectors are trending relative to their US, European and world benchmarks and relative to other sectors.
What’s the role of sector indices in risk, pricing and active returns? S&P DJI’s Tim Edwards joins Rebecca Chesworth of SPDR ETFs to explore how and why some investors are getting active with sectors.
Around half of variation in stock returns can be attributed to sector trends.
Selective Market Exposure
Sectors allow targeted exposure to capture opportunities in market (be it sentiment, macro factors, themes, style). Across a fund range there is also the ability to play different parts of the business cycle in different regions, e.g. US vs. Europe.
Dispersion Between Sector Returns
Dispersion of returns is a defining characteristic of sector investing. As different sectors have different drivers, their returns will diverge over a given period. According to S&P, the dispersion between sector returns accounts for roughly half of the dispersion between stock returns. This implies that half of the value added from picking stocks could be achieved with selecting the right sectors.
Diversification of risk1 Sector investment offers a lower concentration risk than individual stocks and helps avoid idiosyncratic risk associated with individual stocks.
Varied correlations between sectors Each sector has a different correlation with the overall market. Taking advantage of these differences could reduce risk in a portfolio.
Because sectors comprise companies with the same economic activities, there are often style characteristics in common. This knowledge can be utilised to implement an investment view, particularly related to macroeconomic factors.
Investing in sectors can align portfolios with broader market trends, giving exposure to specific factors and styles.
Sectors are particularly well suited to target certain economic variables and, when accessed through ETFs, investors can implement macroeconomic views simply and cost-effectively.2
Track record in managing indexed sector strategies 3
Amount in Sector strategies 3
Number of countries 3
Asset Performance and the Business Cycle: A European Case Study
Traditional theory suggests there are four stages of the business cycle: recovery, expansion, slowdown and contraction. In this paper, we provide a long-term analysis of European business cycles and their impact on sectors, smart beta factors and fixed income. We believe the lessons gleaned can help to inform asset allocation decisions.
1 Diversification does not ensure a profit or guarantee against loss.
2 Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.
3 Source: State Street Global Advisors, as at 30 September 2022.