Sector ETFs are a powerful tool for investors, offering a straightforward way to incorporate simple or sophisticated sector strategies with precision and transparency. And with $447B in AUM,1 it’s clear that equity sector ETFs are more than just a trend.
Powerful Portfolio Construction Tools
Sectors divide the economy into groups of companies that operate similar businesses or provide related products and services. Creating these segments enables in-depth analysis of market dynamics to see which parts of the economy are flourishing - or lagging - in order to find pockets of potential out performance.
Sector investments provide targeted exposure to these economic segments, giving you a wide variety of options to enhance the core of your equity portfolio and adapt to changing market cycles with agility and precision.
Using sector-based investment strategies can help you align and adjust your portfolios based on macroeconomic or thematic trends, like clean energy and declining interest rates, shifts in stock fundamentals, or technical indicators, like momentum.
Sector strategies can be employed to help you:
Pursue alpha: capitalize on a wide dispersion of returns by overweighting winners and underweighting losers
Position for business cycles: align your portfolio with shifts in business cycles by either increasing or reducing allocations to sectors based on the current economic phase
Capture secular or cyclical industry trends: sectors are closely aligned with specific economic variables (oil, inflation, rates), and can help investors capture secular or cyclical industry trends
Harness diversification benefits: seek targeted exposure to a theme or trend without taking on stock-specific risks
When you’re ready to implement a sector strategy, you can consider carving out a portion of your US equity exposure for sectors. Then, choose your sectors based on these types of analysis:
Analyze business cycles to rotate towards sectors that could potentially benefit more from the current economic phase.
Survey macroeconomic data (oil, inflation, rates) to position according to changes in certain macroeconomic variables. Identify cyclical or secular industry trends to harness the growth potential within a particular segment of the economy.
Use aggregated company-level data to identify sectors with attractive fundamental characteristics, such as cheaper valuations and/or stronger earnings sentiment.
Evaluate recent performance to overweight/underweight sectors with strong price momentum.
Choose ETFs for Your Sector Allocation
Investing in sector ETFs can be an efficient way to implement sophisticated strategies with precision and transparency.
ETFs can offer:
Exposure to an entire sector or industry in one trade;
Cost-effective, liquid access; and
Transparency, so you’ll always know the full makeup of your exposure.
Select Sector SPDR® ETFs
As the largest US sector ETF suite, Select Sector SPDR funds have historically traded with greater volume and tighter bid/ask spreads compared to other sector ETF families, which may lead to lower total cost of ownership.2
Let our Investment Solutions Group (ISG) do the work. The SPDR® SSGA US Sector Rotation ETF (XLSR), combines tactical overweights and underweights of S&P 500 sector ETFs based on ISG’s sector return forecasts and research, which includes a proprietary, quantitative sector selection model.
State Street Global Advisors launched the world’s first suite of sector ETFs in 1998, and continues to expand on that heritage to help investors precisely meet their desired sector exposures.
World’s largest sector ETF provider 3
Average trading volume than the next-largest competitor 4
Managing sector ETFs
Explore New Economy Sectors
As emerging technologies reshape the global economy at a breath taking pace, ‘New Economies’ are being created that upend more traditional industries. Learn how artificial intelligence, data processing power, and more are combining to alter the investment landscape.
1 Morningstar, as of 09/30/2019. US-listed ETFs in the Morningstar US Category Group – Sector Equity.
2 Bloomberg Finance L.P., as of 09/30/2019. Based on total assets, 3-month average trading volume and 30-day average bid/ask spread.
3 Bloomberg Finance L.P., as of 09/30/2019.
4 Bloomberg Finance L.P., as of 09/30/2019.
Global Industry Classification Standard (GICS)
A financial-industry guide for classifying industries that is used by investors around the world. The GICS structure consists of 11 sectors, 24 industry groups, 68 industries and 157 sub-industries, and Standard & Poor’s (S&P) has categorized all major public companies into the GICS framework.
An investor or portfolio that invests assets into one or more sector of the economy. The Global Industry Classification Standard (GICS) consists of 11 sectors: Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care,Industrials, Information Technology, Materials, Real Estate, and Utilities.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.
Concentrated investments in a particular sector or industry tend to be more volatile than the overall market and increases risk that events negatively affecting such sectors or industries could reduce returns, potentially causing the value of the Fund’s shares to decrease.
Passively managed funds invest by sampling the Index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the Index.
Select Sector SPDR Funds bear a higher level of risk than more broadly diversified funds. All ETFs are subject to risk, including the possible loss of principal. Sector ETFs products are also subject to sector risk and nondiversification risk, which generally results in greater price fluctuations than the overall market.
Investing involves risk including the risk of loss of principal.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.
Standard & Poor's®, S&P® and SPDR® are registered trademarks of Standard & Poor's Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.
Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SPDR ETFs. ALPS Distributors, Inc., member FINRA, is the distributor for DIA, MDY and SPY, all unit investment trusts. ALPS Portfolio Solutions Distributor, Inc., member FINRA, is the distributor for Select Sector SPDRs. ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. are not affiliated with State Street Global Advisors Funds Distributors, LLC.
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