What are Sector ETFs?

The S&P 500 index tracks the largest 500 US companies that are publicly traded. These companies belong to different sectors of the economy. For example, Apple and Google belong to Technology sector, Johnson & Johnson belongs to Healthcare sector, and Exxon Mobil belongs to Energy sector. There are 10 different sectors in the S&P 500:

Technology ( XLK ) 25.61%

Financials ( XLF ) 14.63%

Healthcare ( XLV ) 14.33%

Consumer Disc. ( XLY ) 11.88%

Industrials ( XLI ) 10.22%

Consumer Staples ( XLP ) 8.21%

Energy ( XLE ) 5.99%

Utilities ( XLU ) 3.13%

Basic Materials ( XLB ) 3.01%

Real Estate ( XLRE ) 2.99%

As you can see, the sectors are not equally weighted. The weighting depends on the market cap of the underlying companies. That is why Technology, Financials and Healthcare comprise more than half of the S&P 500. Investors can take advantage of such information; If an investor believes that one sector of the market is going to perform better than others, he/she can allocate part of their portfolio to that sector by buying the corresponding ETF. There are many financial institutions that offer sector ETFs. Probably the most well known and the most traded sector ETF selection belongs to SPDR. In the chart above, the ticker symbol of each corresponding sector ETF from SPDR is shown. Blackrock's iShares and Vanguard also provide sector ETFs. In another post, I will be going through some of the differences between these ETF providers and some strategies that investors can use to utilize these products.

Disclosure: At the time of this publication I have no position in any of the ETFs mentioned. This publication is NOT intended as financial advice. Published statements are opinions only.